The IFS briefing 'Taxation in an Independent Scotland' inevitably attracted attention as part of the independence debate - highlighting the fiscal challenges that an independent Scotland would face.
However, the briefing actually had more to say about the design of taxation and it's analysis is particularly interesting for those areas that are already devolved, because Scotland will have autonomy over these areas even if it does not opt for independence.
Of particular interest to UNISON a members is the council tax and business rates because that is already devolved. Scotland has made some different choices in this area than England and Wales have including the treatment of second homes, rebate schemes and of course generally lower levels of tax including the council tax freeze.
Despite this all political parties in the Scottish parliament have ducked more fundamental reform of these taxes. The council tax is still based on 1991 property values, with the same band ratio and the same 25% discount for sole occupants. Business rates are still levied on the basis of assessed market rental values of properties, and at the same percentage of value as in England. IFS is rightly critical that even the most obvious reform, revaluation, has been ducked as the parties put sticking plasters over the system, rather than facing up to reform.
One of their options for raising revenue in an independent Scotland involves the council tax. They argue that there would be a strong case for relying more heavily on taxation of property, an immobile tax base, as the creation of a Scotland-rUK border made mobility of other tax bases more of a concern. A 10% increase would raise approximately £170 million for local authorities (net of the resulting increase in council tax support for low-income families).
IFS also argue that the council tax as it stands is flawed. The most obvious problem is the need for a revaluation and they usefully remind us that this is not inherently revenue-raising or revenue-reducing, though it does inevitably redistribute from those whose homes have risen in value by more than the average since 1991 to those whose property values have risen by less. Similarly, making rates (more) proportional to property values would inevitably involve redistribution but could be made to raise or cost as much as desired by adjusting the tax rate(s). The other major weakness in council tax is the single person’s discount – the 25 percent reduction in council tax liability received by one-adult households. Removing this discount would raise £140 million from such one-adult households (again, net of the resulting increase in council tax support) and in the process remove a substantial distortion in the housing market which results in single adults occupying larger properties, and larger households smaller properties, than they otherwise would.
While much of this is pretty challenging stuff, we should be grateful to IFS for trying to wake policy makers out of their lethargy. Credit also to Magnus Gardham in the Herald who also drew attention to these aspects of the report. He said, "Its (Scottish Government) concise response went to the heart of the long and sorry saga of Holyrood's continued failure to tackle the issue of local government finance. It said the council tax was "unfair," it said freezing bills was "overwhelmingly popular," and it said efforts to sort things out would start "later". Labour, despite misgivings felt by many in the party, have been no less guilty than the Nationalists when it comes to the hard-nosed business of campaigning. And so the problems continue. By and large the better off continue to benefit disproportionately from freezing bills while councils face a growing problem providing services which, by and large, the less well off rely upon."
UNISON Scotland agrees that a proper debate on this issue is long overdue. We will shortly publish a new discussion paper to support the debate. A political consensus might be wishful thinking, but we simply cannot duck this issue for ever.