"THE limits of devolution are tight, Westminster could do more, we do need independence. These are truisms. But that is not an excuse for inaction, and that is what we’re seeing at the moment.”
Those comments, from the head of policy and research at the Common Weal think tank Craig Dalzell, reflect calls from trade unionists across Scotland for the government in Edinburgh to do more with its devolved tax powers.
Writing in the Sunday National, Bill Ramsay, the head of the 14,000-strong SNP Trade Union Group (SNP TUG) says that the looming threats of public sector cuts and the real pressures of the cost of living crisis mean that “every effort should be made to increase the tax contribution of higher earners across Scotland”.
Roz Foyer, the general secretary of the STUC – which has more than half a million members, echoed this sentiment. She called for “bold, decisive leadership from the SNP, including using the powers of the parliament to alleviate this cost of living emergency”.
But while – as Nicola Sturgeon has said – “key levers” to tackle the cost of living crisis rest with Westminster, there are still many at the disposal of the Scottish Government.
Local government:
“The [Scottish] Parliament has complete powers to establish any taxes it likes that are local government taxes,” Andy Wightman, the expert on land reform and former MSP, told The Sunday National.
He points out how, under Schedule 5 of the Scotland Act, “local taxes to fund local authority expenditure” are entirely in the gift of Holyrood.
“Dream up any tax you like, dog poo tax, pet tax, alcohol tax, any tax you like,” Wightman says, “if it’s a tax that’s designed for local government to raise revenue for local government expenditure then the parliament can do anything it likes.”
The land reform campaigner suggests that a capital gains tax on second homes could be brought in at local level to help fund the construction of affordable housing.
Dalzell agreed that local government is the area in which Scotland could explore creative use of its tax powers.
“Should local authorities have much more control over the taxes that they can apply?” he asks. “Should we have local [whisky] bottling levies, local property taxes, local environmental taxes, local tourist taxes?”
Tourist tax:
Called a “Transient Visitor Levy” when proposed by Edinburgh Council under the SNP, tourist taxes would see people charged a fee for every night of their stay in a local hotel or short-term let.
Dalzell says that tourist taxes are “almost ubiquitous” in some European nations, and highlights how they are used to shift the tax burden from the local population onto visitors. He says that some areas use the funding for public transport, and gift visitors a travel pass to use during their stay in return.
Such a tax could be brought in by the Scottish Government, with control passed down to local authorities to levy – or not – as they decide.
However, the SNP are only in the administration of 15 of Scotland’s 32 councils, meaning that creating such taxes for local government to control would largely mean handing new powers to their political opponents.
Council tax:
The SNP pledged to scrap council tax – perhaps the most obvious of the local levies the Scottish Government could reform – ahead of their first Holyrood election victory in 2007.
Wightman said the current council tax system – which is based on what property values would have been on April 1, 1991 – is “kind of ridiculous”.
Relying on the date from three decades ago has clear issues for new-build properties’ tax bands, as well as previously poorer areas that have seen a wave of gentrification.
The tax is also “regressive”, meaning that people with a higher share of the tax base pay less in percentage terms. Progressive taxes see the opposite, with people holding higher shares of the tax base paying higher rates.
The SNP TUG, the STUC, and Common Weal have all called for council tax to be replaced. Speaking in April, the First Minister said it was easy to criticise council tax and agreed it was not “fair or progressive”, but said it was hard to find consensus for an idea which could replace it.
Common Weal suggested bringing in a tax which sees people pay 0.63% of the current value of their home – updated annually, every five years, or at every change of ownership. Dalzell said calculations showed this would be “revenue neutral” compared to the council tax system.
A staggered percentage system could make this proposed system more progressive.
Non-domestic rates:
Another local tax which has “huge potential for reform”, according Wightman, is non-domestic rates (NDRs). This local tax can be seen as the business version of council tax, being charged on non-domestic properties held by the private, public and third sectors.
The former MSP suggested that the NDRs should become “a tax more on land than on the buildings on the land”.
He went on: “The way you do that is you tell the valuers – the Joint Valuation boards of which there are eight – you mandate them to value the land and the buildings on the land separately. That’s not a technically hugely challenging job. If a site on Princes Street [in Edinburgh] burns to the ground, that site is still worth an awful lot of money.
“So you do ‘split valuations’, then you give local government the power to levy a different rate on each.”
Land tax:
In 2017, the SNP government tasked the Scottish Land Commission with looking at introducing some form of land value tax. This followed a Scottish Government report which found in 2014 that a “prominent” issue was the lack of a recurrent tax on land itself.
Reporting in 2018, the Land Commission concluded that the “theoretical case for the introduction of a land value tax is strong”, but that the benefits of doing so may prove purely theoretical.
It further noted that other nations – including Australia, New Zealand, South Africa, and Denmark – already have a land value tax.
Wightman says that, in Denmark, citizens pay the government a tax on land owned both at home and abroad.
He went on: “You’ve got the ironic position where you’ve got Scotland’s largest landowner, [Danish billionaire] Anders Povlsen, who I’m in no doubt is obeying the law and paying property taxes on his land in Scotland, but he’ll be paying them to his municipality in Denmark.”
Whisky levy:
The SNP TUG have a motion on the party’s draft conference agenda suggesting a feasibility study into a domestic whisky levy.
The group noted that Professor John Kay – the renowned economist – estimated that only around 2% of the global retail sales value of Scotch whisky remains in Scotland.
Further, the TUG said that because around 92% of Scotch is exported abroad, only the 8% that enters the UK domestic market pays excise duty and VAT.
Dalzell said that a bottling levy on production could be a good example of a “creative workaround” to allow Scotland to recapture revenue from the whisky industry while remaining within the devolution settlement.
However, such a proposal would face fierce opposition, with the Scottish Tories branding it an “insane” idea that would “close distilleries”.
