It may look like a spat between a political party and the representative body of local government in Scotland, but that masks the reality that both are right. Generating more income from the Council Tax is simultaneously crucial to the survival of local government in Scotland and a terrible hammer blow to the poor.
The former position is taken by the Convention of Scottish Local Authorities (Cosla) and the latter by Alba. Cosla is making the case that the accumulated financial settlements of the last ten years have left it on its knees financially and so either there will be serious impacts on services or more money must be found.
Alba argues that the combination of the impact of Covid, the benefit cuts of the Tory Government and price rises mean that those hardest pressed in society can’t take any more.
The fact that both are true is not a natural phenomenon, it is the result of the design of the Council Tax. The Council Tax was designed by the Tory Government and passed into law in 1993 as a direct replacement for the Poll Tax which had resulted in serious public unrest. But the DNA of each is closely linked.
Since then there has been nothing but tinkering at the edges of the Council Tax and the longer this has continued the more problematic things become. In England it is ideology which has prevented the shortcomings of the Council Tax being addressed; in Scotland it is sheer political cowardice.
There are two fundamental problems with the Council Tax. The first is to do with its nature as a property tax because housing costs absorb a higher proportion of the income of those on lowest incomes compared to those on higher incomes. This means that taxing property is likely to hit the poorer harder.
But effectively all taxes hit the poorer proportionately harder unless they get exemptions; the impact is made much worse by the banding used. From the beginning the Council Tax was designed to be specifically regressive. The banding meant that the most expensive houses incurred a rate of tax proportionately less than the least expensive houses and because the top band was so low it was a particular gift to those living in the very most expensive houses.
So the nature of property taxes combined with the way the banding was designed made this an unfair tax from the outset. That is then greatly exacerbated by the second problem; politicians repeatedly refuse to update the house values on which the Council Tax is based.
In England it is ideology which has prevented the shortcomings of the Council Tax being addressed; in Scotland it is sheer political cowardice
This means that we are still charging people a tax based on the value of their house in the early 1990s, but the pattern of housing costs has changed substantially. Simply put, houses in poorer areas have appreciated in value much, much less than houses in expensive areas. The gap between housing wealth keeps increasing but the targetting of that wealth in tax is static.
This means that almost every year an unfair tax becomes more and more unfair and that the burden of cost falls more and more on the poorest.
In 2015 the Scottish Government set up a cross-party Commission on Local Tax Reform. It revealed that in 2016 when it published the poorest households were paying proportionately five times as much as the richest households. It concludes forcefully that the Council Tax is not fit for purpose.
But Scotland is a land where the moderately wealthy make their wealth largely via property ownership and as always they have a massively disproportionate political influence. The Scottish Government responded to the ‘unfit for purpose’ conclusion by making some minor tweaks to bands. This is not in any way what the Commission was calling for.
And so Scotland is left with a tax that it is almost impossible to use because trying to generate income from it will devastate the poor long before it manages to take any substantial amount of money from the well off. The result of this (and the centralising Scottish Government’s non-stop attrition on the funding of local government) is that local government finances really are in a dire state but they have very little they can do about it.
Where Alba is wrong is in suggesting that public funding for a Council Tax freeze is the solution; it absolutely isn’t. The Council Tax must be scrapped and replaced with a tax that is progressive, fair, up-to-date and accurate (like this). Until that happens either local government will fall into further disrepair or it will significantly exacerbate a devastating poverty crisis which is already underway.