Rich face higher bills as commission says 'unfair' council tax must end

Q&A: What local tax reform means for you  

It urged politicians to adopt a hybrid model of local taxation in a bid to come up with a fairer, more progressive alternative to the council tax which would inevitably see the rich paying more than they do currently. It identified three potential tax mechanisms - on property, land and income - that had revenue raising capacity to match the present system.

Marco Biagi, the SNP's local government minister and co-chair of the commission, said that the council tax was too disproportionate to income to be justified. Middle income households are paying out four per cent of their income on the levy, he said, compared to two per cent for highest income households.

The report stated: "Any move to a fairer tax system will also inevitably lead to a situation where some individuals will pay less and some will pay more... The predominant view of the commission is that local government's tax base should, if it could be proved feasible, be broadened to include income."

However, it stopped short of making a set recommendation of a specific replacement, with the Commission's work intended to inform manifestos ahead of next May's Scottish Parliament elections.

It was found that a radical system of land value tax, likely to see most bills reduce in all but the most expensive properties and owners rather than tenants liable for payment, was "promising" but that further work to understand its impact was needed.

The Commission also raises the prospect of councils being given the power to impose a slew of new taxes. The report states that there is potential for broadening the local tax base, potentially handing councils the authority to levy environmental, sales or tourist taxes if they wish.

Mr Biagi also acknowledged that the council tax freeze, in force since it was introduced by the SNP following its 2007 election victory, "cannot go on forever". The policy, which critics say helps the rich more than the poor, has so far cost the Scottish Government £2.5 billion with the figure set to rise to more than £6 billion if it were to continue until 2020/21. The SNP previously backed a local income tax, but abandoned the policy in the face of fierce opposition.

He added: "The most striking consensus from all of the evidence that we have received is that the present council tax cannot go on. The reason for this is simple - some people are paying more than they should. This is not a new realisation but previous attempts at reform over the past 25 years have failed.

"Our report shows that local taxation can be fair, while delivering the scale of the revenues needed to maintain the public services that are the cornerstone of our society.

"The Commission for local tax reform creates an opportunity for change. We think this is an opportunity that must not be missed."

Shortly after publication of the report, Willie Rennie, the Scottish Liberal Democrat leader, described it as a "missed opportunity."

He added: "The SNP have been in power for eight years on a promise to reform council tax. They did hee-haw for seven years. Then they gave this cross-party group just a few months to solve the problem.

"This report sets out plenty of alternatives for the reform of local government finance but after eight years, people might have expected more from a government that said it was committed to reforming the council tax system.

"The Liberal Democrats and others went to the commission in good faith, as did the other parties who participated. A great deal of work went into filling in the blanks on what a new system of local taxation might look like. By setting out the choices we have clearly the report moves the debate along, but ultimately people may think that this was a missed opportunity to build cross-party consensus.

"We will have to consider very seriously how the next Parliament, elected in May, can make the progress that the SNP have failed on for eight years."