A proposal for a Local Authority controlled Land Tax
KEY POINTS
― Land in Scotland remains the largest store of untaxed wealth in the country. This has negative effects not just on national and local budgets, but is corrosive to social equality, democratic accountability and on local economic and community development.
― The devolution framework restricts the Scottish Government from instituting a national-scale land tax but explicitly allows them to enable Local Authorities to manage their own land tax so long as the revenue is used to fund local services.
― Many proposals have been put forward on taxing land, from a bespoke Land Value Tax to various forms of Annual Ground Rent. Most have significant disadvantages such as issues with estimating the taxable potential of the land.
― Common Weal has found that a separate land tax may not be required. Council Tax should be replaced by a proportional Property Tax. This Property Tax should be extended to cover land as well as domestic buildings.
― Previous work by Common Weal found that a Property Tax on buildings set at 0.63% would be ‘revenue neutral’ compared to Council Tax in 2019 – and would attract up to £650 million extra in 2023 given house price rises in the intervening time.
― Extending this 0.63% rate to land would raise an additional amount of around £450 million based on 2022 land prices.
― The distribution of this tax revenue on land has been estimated for each of Scotland’s 32 Local Authorities. For example, Highland Council could expect to receive almost £97 million per year which is almost double their current projected budget shortfall. ― Set at the proposed rates, five Local Authorities would receive revenue from this tax on land equal to or greater than 50% of their current Council Tax revenue.
― More urban Councils benefit less from a Property Tax on land but this is compensated for by their greater expected revenue from Property Tax on buildings. Given that Council Tax is currently one of only a few taxes (semi-)autonomously controlled by Local Authorities, applying a locally controlled tax to land will give a greater degree of democratic control and accountability to those Local Authorities.
― The Scottish Government should act with urgency to replace Council Tax with a proportional Property Tax and should simultaneously extend it to land ownership as laid out in this paper.