Brian Monteith: Taxing times ahead in world of council finance

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A VERY welcome breath of fresh air has entered Scottish politics thanks to our national politicians at Westminster 
 and Holyrood going on holiday. One is tempted to say they should go on holiday more often.

What has happened is that a debate has opened up thanks to people like Richard Kerley, professor of management at Queen Margaret University, and Geoff Mawdsley, the director of think-tank Reform Scotland, making a number of suggestions about how the way we do things locally could change for the better. Both have the benefit of understanding local politics, having been former independent-minded councillors on Edinburgh City Council who have continued to nurture their interest in local governance.

Quite separately but coincidently Mawdsley and Kerley have been responding to the Scottish government’s commission on local taxation. Although from time to time they air different ideas their point is plain, devolution was not meant to stop at Holyrood, but continue into our local communities so that local politics serves the people, not the politicians – by having local decision-making, funding and accountability in closer harmony.

Unfortunately the drift under devolution has been towards centralisation of public bodies or more stifling control through control of funding. Claims this would bring big savings and improve standards have proven illusory. Now, greater thought is again being given about how we can empower our local councils and help them to express their cherished local differences.

This means giving clearly identified, sometimes greater, responsibilities at local level with budgets that can sustain the services and be altered to accommodate changes in the national and local economies. It means councils having control over council tax (or any replacement) and possibly business rates, rather than those being decided at Holyrood.

If we want the Scottish Parliament to be accountable for its decisions then it should also be responsible for raising the majority of the funding that it spends. That way its politicians will consider the pain of tax-raising as well as the gain of the tax-spending. This simple premise applies to local councils too; if we want our local councillors to be more responsive to our demands then they need to be accountable for setting the tax levels that raise the funds for local services.

The council tax freeze was only ever a short political fix but it has intentionally been allowed to become normality. Ironically, it is of greatest benefit to the wealthiest in society and it has not protected local services.

The SNP’s suggestion of bringing in a local income tax offers its own problems – because it would not vary from council to council but would be the same across Scotland, it would do nothing to help diversity or accountability. It is a national solution to a local problem.

Suggestions for different ways of funding our local councils are now being put forward by a variety of people to cover the general funding of all services but also to help with funding of special activities – such as Edinburgh’s festivals.

One idea is that there should be what is being called a “festivals tax” – a levy on businesses that benefit from the added economic activity that various festivals bring that could only be spent on supporting those festivals. Such a hypothecated tax offers some attractions, in that it can give some financial protection to the festivals that bring so many people to our city as they could have a more predictable and reliable source of income.

There is a danger, however, that it simply means an increase in the general tax take as Edinburgh City Council is unlikely to reduce its taxation levels – especially as it currently has no power to cut or raise taxes, thanks to the council tax freeze and the fact that business rates is in fact a national business tax, allbeit collected locally.

Others have extended this idea further to suggest a £1-per-night-per-room bedroom tax, and argue that other countries and cities do this so Scotland would not lose out. This claim is true but does not take account of the fact that 20 per cent VAT is charged on UK hotel stays, whereas in countries that charge a bedroom tax the VAT is generally much lower, being only ten per cent in France, for instance.

It is because such taxes cannot be seen in isolation but viewed as a whole that we need to take care with any reforms – the poll tax debacle taught everyone that.

Some, such as Geoff Mawdsley, argue councils should be able to set and then keep their local business rates – there is a logic to this in the responsibility for and route that tax revenues should flow. Unfortunately there is also a corresponding illogicality regarding local accountability – because businesses do not have votes and in the past were seen by greedy councillors as a cash cow to milk. No-one has yet explained how there would be a check on councils from driving businesses and jobs away by over-taxing local enterprise – a problem in the past.

This issue won’t be solved overnight, but a solution is overdue. Are there any politicians brave enough to do it when there appears to be no votes in it for them? With an unassailable majority, the SNP surely cannot do nothing?