This article by Geoff Mawdsley appeared in the Herald
The Scottish Government’s Commission on Local Tax Reform, which aims to look at “ways of developing a fairer system of local taxation”, provides a real opportunity to reinvigorate local democracy in Scotland. However, to do so it needs to go beyond merely tinkering with council tax or replacing one centrally-controlled tax with another and aim for a new local fiscal settlement which gives councils the ability to raise far more of their own revenue.
Reform Scotland is firmly of the view that financial empowerment is linked to wider empowerment and, therefore, that stronger local democracy requires councils to raise much more of their revenue.
In this respect, Scotland is out of line with many similar European countries. With the council tax freeze and centrally-set business rates, councils have no real control over their own tax income. They do raise some of their own revenue through fees, rents and charges, but this is only just over 10 per cent of their total revenue.
In contrast, local authorities in many other European countries raise far more of their own revenue and we should aim to move in this direction. The goal should be to reach a situation where councils raise half of their own revenue, which still leaves room for a grant system to ensure more rural areas or those with high levels of social deprivation are not penalised.
This greater local empowerment is vital because it is the key to effectively addressing the challenges facing the different communities throughout Scotland and delivering better outcomes for all our citizens.
Scotland is a diverse country and different parts have differing needs and priorities. Therefore, it makes no sense to try to impose uniform solutions across the country. In any case, this approach has not led to consistent outcomes since there are wide variations in performance across Scotland.
The solution lies in giving communities the ability to control how their areas develop which requires greater control of their own finances. Councils would then be in a position to find the right balance between taxation and expenditure for their area. It would enable them to, as it were, put their money where their mouth is if they wish to spend more on a particular area or to deal with a particular problem. In turn, local elected representatives would have to justify their decisions on levels of taxation and spending to local electors so creating better engagement with communities about their concerns and so a strengthening of local democracy.
So how can we reach this ideal situation? The starting point must be to broaden local government’s tax base and enable councils to levy a range of taxes rather than just the council tax. It is common in other countries for local authorities, many of which are much smaller than Scottish councils, to have the ability to levy a combination of property, income and business taxes and in some cases other taxes such as local sales taxes as well. This is the model we should follow, starting with returning council tax and business rates to full local control, albeit with transitional arrangements in place for the transfer of business rates to adjust grant and ensure no council was initially penalised unfairly.
This would not achieve the aim of councils raising half of their own income, but would be a significant step in the right direction. Further fiscal autonomy for councils should follow when the Scottish Parliament itself gains greater fiscal powers in the coming years.
As the old adage goes, he who pays the piper calls the tune. The increasing centralisation of fiscal powers over the years is a symptom of the trend towards central control in Scotland. This approach has not delivered improved services or better value for money – quite the opposite. It is time to try a different approach where councils have the means to deal with the particular issues facing their area. Evidence from other countries shows this can not only lead to better outcomes, but also reinvigorate local democracy. If the Scottish Government’s Commission on Local Tax Reform is ambitious, it will start to take us down this road.
This article first appeared in the Herald on 27 August 2015.