Council tax: the path not taken

When the SNP took up the reins of government in 2007, one of its flagship promises was to freeze council tax.

Since council tax is a local council responsibility, this was a promise that Scottish Government had no direct means to deliver. It had to persuade councils to freeze council tax through making an annual payment or “holdback”, which, in Edinburgh, is just short of £7 million.

In effect, the council was told, it would only get that £7 million if it promised to freeze council tax at the level set in 2007-08.

And so it has continued, each year since. In fact the “holdback” is considerably larger than £7 million since there were also other “holdbacks” involved in a total package – on education, for example, and, until Police Scotland took over, on police numbers.

This year the total holdback is a little over £9.5 million for Edinburgh. This equates to 4.1% of council tax income. So if I were to propose a 4.75% rise in council tax (as my Green colleagues in Brighton are proposing, to invest in care services) under the much more severe Scottish system, I’d have to hand almost all of that back. 4.75% would raise just over £11 million extra – but £9.508 million would be lost to the Scottish Government, leaving only £1.5 million to invest in Edinburgh. Not really plausible, is it?

So the Scottish Government has had local councils in a very big armlock. They are, theoretically, still able to raise council tax to invest in local services, but the financial penalties for doing so are so huge that none have been able to do so.

Game, set and match to Finance Minister, John Swinney. Except that there has been a consequence in that game. As council tax has withered, councils have had to focus more on other ways of raising income though charges – everything from care homes, to parking, to swimming pools and so on. In Edinburgh, charges will soon be at a level where they overtake council tax altogether as a source of income.

Meanwhile the City Council has a £36 million gap between spending and income next year, which it is having to bridge by some pretty unpalatable cuts – to schools and disabled services, for example. And also at a time when longer term investment in improving schools, care homes, roads and footways, parks and play-areas is not enough even to tread water.

It’s traditional, of course, to blame the tram and I, for one, am not going to defend the way that project, and its finances, have been managed. But the council tax freeze is far more significant than the tram in explaining the financial problems the council faces. Other, tram-less, councils face the same or even worse cuts.

So let’s think about another choice John Swinney could have made. Back in 2007, the council tax freeze was, arguably, a response to a sense of council tax bills rising too fast year on year, ahead of people’s willingness to pay. An alternative response to that – rather than an absolute freeze – would have been to say that council tax would be allowed to rise by no more than inflation. Mr Swinney would still have had to make the £7 million payment to ensure that the commitment was kept. But keeping council tax within inflation would have been a perfectly plausible step for the Scottish Government to take, on the one hand responding to concerns about council tax; on the other hand recognising that councils need to invest in services.

If that had happened – if council tax had been pegged to inflation only – Edinburgh’s starting budget for next year would be £52.6 million higher now than it is. More than enough to address the £36 million gap: so no need to merge school libraries, cut special needs school budgets and reduce services to disabled people.

Even more importantly, over the last 7 years, depending on savings also being made, up to an extra £210 million would have been raised for Edinburgh services – enough to cover the £25 million school repairs gap, to improve pavements, cycleways and roads, to invest in our parks and leisure facilities and to provide care homes fit for our older people. Investment in these facilities now will protect us from much bigger bills in the future.

Sure, if this had happened, people would have gradually been paying a bit more in council tax over the 7 years. By 2014-15, a Band D house would be £5.08 a week more than in 2007. It’d be £3.38 for band A, rising to £10.15 in the most expensive Band H homes, with people living alone getting 25% off the bill and the poorest households protected through the council tax reduction scheme.

This is all “what if”, of course. I won’t be proposing that council tax increases next year because the financial penalties are massive in the current system. Personally, I don’t even like council tax; I’d replace it with a fairer tax on land values tomorrow. But where we are now is not inevitable. It has been a choice, with real consequences for services and investment.

A shorter version of this blog appeared in the Edinburgh Evening News on 3 February 2014