Scotland’s independent think tank
Scotland’s independent think tank

Give councils the tools to finish the job

This article by Alison Payne first appeared in Public Finance on 12 April 2018

Devolving control over all taxes, rates, fees and charges would equip local authorities to meet financial challenges head on, says Alison Payne of Reform Scotland.

The Accounts Commission’s recent local government in Scotland report highlighted that finding savings was now “increasingly critical” for councils due to ongoing reductions in funding.  

However, councils’ abilities to manage their finances are severely constrained because they have almost no control over local taxation.

The two taxes that are often cited as being ‘local’ – council tax and business rates – are actually heavily centralised.

Council tax was centrally frozen for eight years and even now local authorities’ ability to vary it is severely restricted by central government. In the case of business rates, local authorities are nothing more than collection agents, with the rate set by the centre and the funding going to the government in Edinburgh for redistribution as it sees fit. As a result, the only revenue stream councils have proper control over is made up of sales, rents, fees and charges.

Reform Scotland believes that decisions should be made closer to those whom they affect, in order to rejuvenate local democracy. That’s why we want to see council tax and business rates devolved to local authorities in full – bands, rates, increases, cuts, applications, the lot.

This would enable local priorities and circumstances to be properly taken in to account.  Individual councils would therefore be able to decide to whom and how each tax applied.  For example, in terms of how second homes were dealt with or high street rejuvenation.  

Further, we want local authorities to have the ability to introduce new taxes, such as the tourism tax that has been discussed for Edinburgh. Local authorities are in the best position to ascertain what they would like their overall tax take to be, and they also know how best to achieve that.

Having these powers would enable local authorities to better respond to the difference circumstances they face. Just as the UK economy is varied and requires different solutions in different regions, so too is the Scottish economy.  

Workplace GVA figures Edinburgh and Aberdeen are amongst the top performing across the UK as a whole while East Lothian and Midlothian are amongst the poorest performing.  Councils need to have the tools at their disposal to respond to these differences. One-size-fits-all solutions will not work.

According to the Scottish Local Government Finance Statistics, in 2016-17 local authorities in Scotland had £17.3bn of revenue income. Fully devolving council tax and business rates together with income from sales, rents, fees and charges would give councillors responsibility for just over 40% of their expenditure, up from 14% currently.

It is sometimes said, unfairly I would argue, that our councils cannot and could not cope with the additional responsibilities Reform Scotland believes should be devolved.

However, it is worth remembering that a number of similar claims were made of a devolved Scottish body in the early 1990s. People may not have imagined then that less than 30 years later a Scottish Parliament would, and could, manage all the responsibilities it now has.  The debate has to start somewhere.

The key point is that it should be up to the people we elect to run our councils to decide how much, and how, we should be taxed in order for those councils to be run. If voters don’t like how they decide to do it, then they can remove them, just as they can at Holyrood or Westminster. That’s real democracy.