This article by Ben Thomson appeared in the Scotsman
THE last few months have seen a strong case from politicians across all parties for more responsibility, particularly in revenue-raising powers, for Holyrood. Yet exactly the same arguments used to justify more powers for Holyrood can be used to support more powers for local government.
In the Scottish Government’s latest figures, Holyrood was responsible for raising only 6 per cent of total tax revenue in Scotland and responsible for 33 per cent of expenditure, but the situation is even worse for our local authorities, with Scottish councils responsible for 25 per cent of all expenditure in Scotland but arguably responsible for no tax revenue. Although business rates and council tax are collected locally, business rates are set centrally and the Scottish Government redistributes the income. The only real revenue to local government is from fees, rents and charges, and when this is taken into account, local authorities in Scotland are only responsible for roughly 11 per cent of their own income.
Reform Scotland believes that each tier of government should, as far as possible, be responsible for raising the money it spends. In our publication Devolution Plus we set out how we thought this could be achieved for the Scottish Parliament and tomorrow we have published Local Taxes which we believe sets out how we can begin to make our councils more accountable and responsive to local communities.
While we do believe that devolving more power from Westminster to Holyrood would enable more powers in turn to be devolved to councils, Reform Scotland has also outlined a number of policies which the Scottish Government could introduce now with existing powers which would benefit our councils.
First, we believe that business rates should be returned to local control. Just as it has been argued that there is little incentive for the Scottish Government to improve the economic environment if any increase in revenue as a result of improved growth is returned to Westminster, the same can be said of our councils and business rates. Devolving business rates to local councils would give local authorities a real incentive to increase economic growth and address specific problems they are facing. Non-domestic rate income is currently re-distributed across councils and to ensure that this policy did not create a situation where some councils suddenly receive more money and others less, our report recommends that, in the first year of the operation, the Scottish Government grants to each council should be based on the grant they received the previous year, less the business rates collected from the council area in that previous year. Councils would then receive the revenue raised from business rates in their area, with the remaining part of their revenue grant adjusted to ensure no council was better or worse off. Each council would then have to decide whether to retain the business rates inherited or to seek to increase or reduce business rates for their area.
Councils would have an incentive to provide an attractive economic environment, but the decision would be up to them. For example, a council could seek to increase business rates which might have the effect of increasing income in the short term but is likely to lead to poorer economic performance and lower income from business rates in the longer term. However, the increase in local financial accountability is more likely to give councils an incentive to design business taxation policies and broader local economic development strategies to support the growth of local businesses, encourage new business start-ups and attract businesses to invest since this will benefit the council directly by increasing its income from business taxes.
The change to the grant level would remain the same in future years and would not be affected by whether the individual council collected more or less in business rates. This is essential as it provides an incentive for all councils, regardless of how much they currently receive in business rates, to improve economic growth in their area. It is also cost neutral to the Scottish Government.
Although some more rural areas have a smaller business tax base than the big cities, giving control over the tax to the authority gives the power to adjust it to local circumstances. For example, while rural areas may not have the big shopping centres of the cities, they do have high streets, many of which are suffering. Being in full control of the tax would enable councils to experiment with schemes such as offering a year’s business rate holiday to companies which locate in their high streets.
Reform Scotland also believes that councils should be fully in control of their council tax. In other words, they should be able to raise or lower the rate and change to whom and how it applies.
We would also argue that councils should be able to introduce new small taxes, such as bed taxes, where they feel they are appropriate for their area. If the electorate disagrees, they can vote the councillors out. Such small schemes also increase diversity and allow other councils to learn from the experiences. Importantly, it also makes councils less dependent on central government grants.
We are hearing a great deal at the moment that what is right for the rest of the UK isn’t always best for Scotland and that is why the Scottish parliament needs more powers, and we would agree with that. But a one-size-fits-all approach isn’t right for Scotland either and Reform Scotland believes the policies set out in Local Taxes will help foster local accountability and responsibility, which is just as important.
• Ben Thomson is chairman of the independent thinktank Reform Scotland