Council tax requires greater public awareness of reliefs and exemptions to improve fairness, say tax experts

The comments came in a submission by the Chartered Institute of Taxation (CIOT) and its Low Incomes Tax Reform Group (LITRG) to the Scottish Parliament’s Local Government and Communities Committee, which is investigating the Scottish Government’s proposed changes to Council Tax.

The CIOT and LITRG have also called on the Scottish Government and Scotland’s councils to commit to a publicity campaign aimed at ensuring taxpayers are made aware of the proposed changes, the impact on their Council Tax bills and the exemptions and discounts available for eligible households. Public understanding of how local councils are funded should also be improved, to ensure people realise less than a fifth of local council funding comes from Council Tax.

In their submission, the bodies argue that the Scottish Government’s proposals to increase the upper ratios of properties in bands E to H (relative to Band D) would “improve fairness slightly”, but added that “the proposed reforms do little to change the broadly regressive nature of Council Tax.”

The response cited figures showing that while owners of higher value properties (Band E to H) would pay more as a percentage relative to Band D, those in the lowest value properties would continue to pay as much as 2.5 times the rate of tax (per £1,000) than those in the highest value homes.

It stressed that “the decision not to hold a revaluation and update property values means that Council Tax will still not reflect actual property values and will not be any fairer in this regard.”

The CIOT and LITRG welcomed plans to introduce targeted relief for households earning less than the Scottish median for their household type alongside increases to the child allowance within the Council Tax reduction scheme, stressing that these were important steps towards improving fairness within the system.

However, it added that greater awareness was needed among taxpayers of the changes, as high take up of exemptions and discounts would represent “the main route to fairness” in a reformed Council Tax, alongside integration with the wider benefits system.

Moira Kelly, Chair of the CIOT Scottish Technical Committee, said: “While the Scottish Government’s reforms to Council Tax are a welcome first step, we think more could be done to reform what will remain a regressive tax. We call on the Scottish Government not to rule out future changes and to make good on the opportunities afforded by last year’s Commission on Local Tax Reform.

“The decision not to commit to a revaluation means that the amount of Council Tax paid will continue to be based on values calculated a quarter of a century ago. In this respect – as with the rate of tax paid per £1,000 of a building’s value – these reforms suggest that much more could be done to improve the fairness of Council Tax.

“We would also encourage the Scottish Government to improve public understanding of how local councils are funded, since less than a fifth of local council funding comes from Council Tax. This might also help with the perception of the fairness of the funding of local councils.”

Anthony Thomas, LITRG Chairman, added: “As we highlighted in our submission to the Commission on Local Tax Reform last year, one of the main routes to securing an element of fairness in the Council Tax will be through the system of reliefs and exemptions.

“It will be important that the proposed changes take into account their interaction with the wider tax credits and benefits system in order to reduce complexity, ensure efficient use of resources and encourage uptake among eligible households.

“Furthermore this could be achieved, for example, by describing the system of reliefs as an entitlement rather than a benefit, stressing its role as an enabler of a fair Council Tax bill relative to individual circumstances.

“This will require cooperation between government and Scotland’s councils and it is vital that they work together to ensure a consistent approach both in the implementation of these reforms and in promoting public awareness of how these changes will affect individual council tax payers.”

The Local Government and Communities Committee of the Scottish Parliament issued a call for evidence on the Scottish Government’s draft Council Tax (Substitution of Proportion) (Scotland) Order 2016 on 7 September.