Expert weighs in on alternatives to council tax in Scotland

But working out what should replace council tax or how it should be tweaked is tricky, with different taxation systems having pros and cons. Reform would also come with the hurdle of getting the public on board through solid communication of alternatives.

While exploring some of the alternatives, the commission itself never advocated for any one specific replacement.

Economist Emma Congreve from the Fraser of Allander Institute told The National reform of council tax “is so overdue it’s ridiculous”, but paths to changing it are challenging.  

We spoke to her to talk through some of the ways council tax could be reformed.

Full revaluation

One of the main reasons council tax is seen as unfair is because of outdated property valuations, with England and Scotland both using property values as assessed at April 1, 1991.

A full revaluation of all domestic property, such that all properties can be allocated to the correct band, would be a way of addressing out-of-date evaluations.

The Low Incomes Tax Reform Group argues though that this could not be a one-off and there would need to be regular revaluations so that there is never such an issue with out-of-date valuations again.

READ MORE: Why is council tax unfair and why does it need reforming?

Congreve said revaluation of properties is the most important piece of reform that must happen.

She said: “The first thing that has to happen is that revaluation, so any tinkering around with bands as was done in 2017 (in Scotland), we feel quite strongly that can’t really be justified until the revaluation has take place.

“If you’re retaining council tax or if you’re moving to a different type of taxation model, having it based on up-to-date values is the prerequisite for anything here.

“If you did a revaluation it doesn’t mean people would pay more, it would just make sure that for properties that have risen in value above the average, they would pay more and those that haven’t might go down a band. I think a lot of people assume a revaluation means I’ll have to pay more, but the same amount of people would pay less.”

In 2016, MSPs voted for the top four bands of council tax to be increased from the following year.

An analysis by the Commission on Local Tax Reform in conjunction with Heriot-Watt University suggested that 57% of properties in Scotland would have changed band had a revaluation been carried out in 2014 with roughly an equal number moving up and down.

Local income tax and Scottish Service Tax

People sometimes raise concerns that council tax does not take into account someone's ability to pay, with it being based on property value rather than income.

Possibilities for tackling this, such as replacing council tax with a local income tax, have been suggested.

The Scottish Socialist Party has called previously for an income-based Scottish Service Tax to replace council tax. It would be based on ability to pay, with a succession of tax bands and progressively rising taxation rates.

This would see the first £12,000 of a person’s income be entirely exempt; the income bracket £12,000-£30,000 would pay 4.5% towards local jobs and services, peaking at 20% Service Tax on all income above £100,000.

(Image: University of Strathclyde) A bill proposing a progressive system of taxation based on a household's income was presented in 2005 at Holyrood, but was defeated with 12 MSPs in favour, 94 against, and six abstaining.

Congreve (above) said: “For some people they are much more comfortable with income being taxed rather than property but then there’s an issue of all the controversy we have whenever income tax is changed; all those behavioural impacts that are possible that would come into play if people were being levied on their earnings at a local level as well as a national level.

“The other issue is the council tax is stable, they [local authorities] know what they’re going to be getting each year and that’s quite important for relatively small local authorities.

“With a local income tax it would be much harder to be able to have any certainty.”

Land value tax

Land value tax is a tool for raising public revenue through an annual charge based on the value of a given parcel of land.

Unlike other types of property tax, land value taxes are based on the unimproved value of land, ignoring any property or infrastructure that might be on it.

The basic idea behind a land value tax is that pieces of land get their value from their location rather than the quality of the development sitting on top of them. What gives the location its value is the surrounding infrastructure. For example, land tends to be more valuable in the centre of a city with high footfall, or areas with good transport infrastructure, schools, hospitals, etc.

READ MORE: Axing the Tax: The National series explores council tax reform

This infrastructure has not been paid for by the landowner, but rather generations of taxpayers. Therefore in economic theory, land value tax is seen as an attempt to capture value that has nothing to do with the owner’s efforts, to reimburse society.

Congreve explained some economists like the tax because there can’t be any adverse behavioural impacts attached to it, but some have argued it wouldn't work for Scotland.

She stressed it would be difficult to introduce.

“There’s not a lot of behavioural impacts a land tax can have. Even a property tax, it can influence the decisions you make about property, whether you extend it for example,” she aid.

“With a land tax, there’s nothing you can do. There can’t be more or less land produced. That’s why economists like it because there can’t be any adverse behavioural impacts that you get with other forms of taxes.”

She added: “It’s a big step into the unknown in the sense we don’t know what one would look like. There is no precedent for it and therefore in order to move to it, you would need to know who owns all the land in Scotland, that is not known at the moment. We do know who owns most properties.

“Then you need to come up with a system of how you value the land. It is feasible to do, but it’s difficult. It’s not something that could happen overnight."