Richest to lose ten times as much as poorest half of households from Scottish council tax reforms

Resolution Foundation welcomes battle over progressive property taxation in run up to Scottish elections

The average cash losses from the Scottish government’s proposed council tax reforms will be over ten times greater for the richest tenth of households compared to the poorest half, according to a new report published today (Friday) by the Resolution Foundation.

Battle of the Bands models the impact of the Scottish government’s council tax plans, along with those proposed by Scottish Labour and the Scottish Greens. The Scottish Conservatives and Lib Dems are expected to announce their own proposals shortly.

The report says that the case for reform is strong as the current system is out-dated and disproportionately taxes those in lower value homes. It shows that the current band structure creates a tax rate of over 1.5 per cent (of a property’s value) in the cheapest homes, compared to less than 0.1 per cent in the most expensive homes.

The Foundation welcomes the fact that all of the Scottish parties’ proposals improve both the proportionality of council tax to property values.

The reforms proposed by the SNP maintain the council tax system while increasing council tax for those in the top bands (E-H), exempting lower income households from this increase through the Council Tax Reduction system and boosting the per-child Council Tax Reduction allowance, among other changes.

Most households would be unaffected and the package of reforms is expected to raise around £100m. This would be a progressive revenue increase, with the richest fifth of households expected to account for half of the tax rise.

The report shows that the average cash loss for the richest tenth of households would be £125 – over ten times the average loss across the bottom half of the income distribution (£11). As a share of income, the richest tenth of households will lose three times as much as the bottom half.  It adds that some households will actually be better off as a result of the more generous Council Tax Reduction scheme, especially if take-up of Council Tax Reduction can be improved.

Battle of the Bands notes that the Scottish Labour and Green proposals are also progressive and would mean higher tax bills for those in expensive properties and lower bills for those with lower value properties. Crucially their plans include a revaluation of properties not proposed by the SNP. Such a revaluation would have a significant impact given the Commission on Local Tax Reform’s finding that the majority of properties in Scotland are in the wrong band given current values.

While Labour’s plan aims to be revenue neutral, the Green Party’s proposals are expected to raise significantly more than any the other policy packages (at the cost of far greater losses for those with high value properties).

With any reform in Scotland likely to take effect from April 2017, Wales having added an extra band at the top and undertaken a revaluation, and Northern Ireland maintaining its proportional rates system, the report suggests that England will be left with the most regressive domestic property tax system in the UK.

The Foundation says this – as well as the fact that valuations are now 25 years out of date – makes the case for reforming England’s council tax system stronger than ever. It adds that improving Council Tax Reduction should also be a key goal, as recent cuts (in England), persistently low take-up and a lack of integration with Universal Credit are already causing problems for many low-income families.

Adam Corlett, Economic Analyst at the Resolution Foundation, said: “Britain’s council tax system is out-dated, unfair and in urgent need of reform. While the issue has largely been ducked in England, Scotland now looks set to embark on significant improvements.

“Plans the SNP aim to implement next year would see a £100m tax increase with the richest tenth of households accounting for half of the extra tax take while lower income families would on average face a negligible tax rise. Some low income households would actually be better off after the changes, and increasing the take-up of Council Tax Reduction would further reduce the impact on these families.

“It’s encouraging that while the proposals offered by Scottish parties differ in design and by the amount they raise, all improve the proportionality of the system.

“The upcoming Scottish election looks set to be a key battleground for progressive taxation of properties – as well as incomes. It’s a debate that will likely benefit lower income households in the round, whichever party prevails, and one which parties across the UK should look to.”

Notes to Editors

Impact of SNP proposals across the income distribution