Council tax reform proposals ‘will harm developers and landowners’

David Melhuish
David Melhuish

Scotland’s property industry has warned of the underlying effects of the Scottish Government’s “failure” to address a potential revaluation of the council tax base or re-structure the existing bands to introduce further higher value bands.

Yesterday’s announcement by first minster Nicola Sturgeon included proposals for the rates paid by those in the four highest council tax bands (E, F, G and H) to be adjusted from April 2017 in a move that will generate £100 million a year to be invested in schools through future local government settlements.

Under the proposals, which the first minister said build on the recommendations of the Commission on Local Tax Reform, the average band E household will pay around £2 per week more and the average household in the highest band will pay around £10 a week more.

The 75 per cent of Scottish households that live in bands A to D will be unaffected by this change to the council tax band system and a further 54,000 households living in bands E to H on low incomes - more than one third of which are pensioner households - will be entitled to an exemption from the changes through the council tax reduction scheme.

The reforms will also provide additional support to families on low incomes across all council tax bands by extending the relief available to households with children. This will benefit 77,000 low income families by an average of £173 per year, supporting an estimated 140,000 children.

Council tax bills have been frozen in Scotland since 2007 and the changes announced today will ensure that bills in every band will be lower than they would have been had the freeze not been in place. Across Scotland, average rates in all bands will remain lower than the average in England.

The council freeze will continue until April 2017. From April 2017, the freeze will be replaced with discretion for local authorities to increase council tax by a maximum of 3 per cent per year. This could generate up to £70m for council services across the country.

The first minister also confirmed that the changes will pave the way for longer term reforms that will give local councils the benefit of growth in the Scottish economy, make taxation to fund local government expenditure as a whole more progressive and make the funding of local services more transparent.

The Scottish Property Federation (SPF) branded the new package of measures on council tax as “disappointing” although still a “step forward” in terms of a reformed cap on council tax and the ability of local authorities to control their own revenues.

David Melhuish, director of the Scottish Property Federation, said:We welcome the reform of the cap on council tax whereby the most expensive homes could only pay three times the level of the least expensive properties – and the fact that local authorities will have more power to control their own revenues – this is long overdue.

“We are, however, disappointed that there is no mention in the first minister’s statement of a revaluation of the tax base or a re-structuring of council tax bands, which in our view are fundamentally necessary to making the council tax system fairer and relevant.”

The SPF has also warned that new powers proposed by the Scottish Government to enable councils to levy a tax on development and vacant and derelict land could have far-reaching and negative consequences for business and investor confidence in the property sector.

Mr Melhuish added: “The most concerning part of today’s announcement is the proposed new tax on vacant and derelict that aims to tackle land banking. We know that in many examples the barriers to development are within the planning system itself and we would urge ministers to avoid measures that disadvantage developers or landowners unfairly.

“There is a risk that such measures will effectively become a tax on development and investment that will penalise many property businesses for a problem which often isn’t of their making.”

Sarah Speirs, director of Royal Institute of Chartered Surveyors in Scotland, said: “We welcome the Scottish Government’s announcement that the local tax system of domestic property will remain property based. RICS believes that a regularly updated property-based taxation system is the simplest and most effective way to fund local services as the fixed nature of property facilitates collection and hinders concealment. Furthermore, with the onus to pay being on the occupier, and not the owner, the collection rate is high, with the administrative costs being relatively low.

“However, we feel that this announcement presents a missed opportunity to introduce a more progressive and fairer approach to local taxation of domestic properties in Scotland.

“We acknowledge the council tax increase in higher bands, and support for those in lower bands, will provide additional revenue; however, further steps can be taken through reviewing current bands and thresholds and revisiting the current, regressive multiplier. Additionally, current council tax bands are based upon valuations from 1991 and we suggest the introduction of statutory, five-year property valuation to ensure bands are align with market conditions.”

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