The Scottish Government is consulting on reforms to council tax
rates that would increase the tax on properties in bands E–H by
between 7.5% and 22.5% relative to other properties. Following on
from previous increases of the same percentage size in 2017, this
means a band H property in Scotland would face a tax bill 4.5
times as large as a band A property, compared with 3 times as
large in England. This means that as well as aiming to raise
revenue, the reforms would reduce the regressivity of
council tax with respect to property values.
The Scottish Government’s proposals are therefore a small
step in the right direction, and compare favourably with
the situation in England, where reform seems a distant prospect.
However, Scottish council tax would remain highly
regressive: a band H property in Scotland was worth at
least 8 times as much as a band A property when council tax bands
were set – and often much more than that – so will face at most a
rate of tax just over half that faced by a band A
property, measured as a share of property value.
The Scottish Government also plans to keep using 1991
values to place properties into council tax bands.
Because the value of different properties in different parts of
Scotland will have changed very differently in the intervening
years, this means many properties are, in effect, in the
wrong band and facing the wrong tax rate. Estimates
suggest half or more of properties/households may be in this
situation. This is a situation that should be addressed via a
revaluation, with new tax thresholds and bands based on
up-to-date values.
Lastly, the Scottish Government has highlighted how even
following the increases in band E–H rates, the average tax rates
for bands E–G would remain lower than in England, given Scottish
councils set lower council tax overall. This is correct but
potentially misleading. Council tax thresholds are lower in
Scotland, so that, for example, a property worth £60,000 in 1991
would be in band C in England but in band E in Scotland, and
therefore face a higher tax bill. These lower Scottish thresholds
mean the vast majority of properties in bands E–H in
Scotland in fact could face higher tax bills than properties in
England with the same (1991) value. Because values have
gone up by somewhat less in Scotland (4.9-fold) than England
(5.5-fold) since 1991, this is even more true when making the
comparison based on current property values.
David Phillips, an Associate Director at IFS and author
of the comment, said:
‘Facing a difficult budgetary situation, the Scottish Government
again proposes increased taxes on approximately the quarter of
households living in properties that have the highest assessed
values for council tax purposes. This will be a progressive tax
increase, with those in band H properties potentially paying
around £800 a year more in council tax, raising up to £175
million: the equivalent of around a 2% increase in the higher
(42%) rate of income tax.
‘However, the proposed reforms would leave council tax still
strongly regressive with respect to property values. And the
Scottish Government seems set on ducking the vital issue of
revaluing properties – continuing to base council tax on property
values from 1991 could easily mean half or more of properties are
in effect in the wrong band and their occupiers therefore facing
the wrong tax bills.
‘When the Scottish Government sensibly designed its land and
buildings transaction tax to avoid big and unfair jumps in tax
bills at tax thresholds, the UK government soon followed suit,
showing the potential for reform in one part of the country to
catalyse it elsewhere. The Welsh Government is now grasping the
nettle with a proposed revaluation and more fundamental reform of
council tax; it is disappointing that this does not yet appear to
be encouraging Edinburgh and indeed Westminster to be bolder
too.’
Read the briefing
ENDS
Notes to Editor
Scottish council tax proposals are a small step in the right
direction but duck the biggest issue: revaluation is an IFS
comment by David Phillips and can be read on the IFS website
here: https://ifs.org.uk/articles/scottish-council-tax-proposals-are-small-step-right-direction-duck-biggest-issue
