Local Government and Communities Committee

Meeting date: Wednesday, September 28, 2016

Official Report 595KB pdf

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Subordinate Legislation

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Council Tax (Substitution of Proportion) (Scotland) Order 2016 [Draft]

Good morning, everyone. Welcome to the sixth meeting of the Local Government and Communities Committee. I remind everyone present to turn off mobile phones. As our meeting papers are provided in digital format, you may see members using tablets during the meeting to look at the papers.

We have a full house again this morning, and no apologies have been received from members. Agenda item 1 is subordinate legislation. The committee will take evidence on the Council Tax (Substitution of Proportion) (Scotland) Order 2016.

I welcome Councillor Kevin Keenan, spokesperson for resources and capacity, and Jonathan Sharma, policy manager, from the Convention of Scottish Local Authorities; Paul Manning, who is from the Scottish Local Government Partnership and is executive director of finance and corporate resources at South Lanarkshire Council; Derek Yule, the director of finance at Highland Council and the current chair of the Chartered Institute of Public Finance and Accountancy’s Scottish local government directors of finance group; and Dave Watson, head of policy and public affairs, Unison Scotland. Good morning, gentlemen. Thank you for coming along to give evidence on this Scottish statutory instrument.

We have a few opening statements, which I hope will be brief, as that will allow us more time for questions. I ask Councillor Keenan to make his statement.

COSLA welcomes the opportunity to come along here today and to present its case. We have provided written evidence and we are here to take questions on that.

I will just say a few things about the proposed reform. It does not go far enough. The Government needs to publicise its intended increases to band E and above by way of a multiplier. Clearly, we need to know whether a multiplier factor will also be added to water charges. Perhaps some of my other colleagues will be able to talk about the technicalities of that.

The tax changes that are to be imposed on local government to fund a national project will break the link between local taxation and delivering local services. There could have been a much more equitable way to deliver such a level of change. Indeed, the commission on local taxation, which involved COSLA and the Scottish Government, included a number of proposals that we would have liked to see implemented and that would have been much fairer. I will leave it at that.

Thank you very much, Councillor Keenan. I call Derek Yule.

I, too, welcome the opportunity to give evidence this morning. We will provide a professional perspective on the challenges of implementing the proposal. One of my focuses will be on the accountability of the tax proposals, their perceived fairness and some of the challenges that that might present. I, too, would highlight that the Scottish Government has not addressed the water issue in the proposals—it has been completely silent on that. We see clarification on the implementation of the proposed changes as a major issue, because the ease of implementation will depend on how the Government wishes to proceed. That is all that I wish to say at this stage. Thank you.

Thank you, Mr Yule. The final statement is from Dave Watson.

Unison welcomes the end of the council tax freeze, which we have argued for for some time. We also welcome some improvement in the progressivity of the bands, and we obviously support anything that would help low-income households cope with the increases in council tax.

You will not be surprised to hear that there is a “but”. We have always argued for a full review of the council tax and not what are, frankly, just a few tweaks. The band changes are not progressive enough. We are particularly concerned that there is to be no revaluation, leaving the bands at 1991 values. We do not like the proposals to ring fence the £100 million revenues from the additional banding or the cap on the council tax increase. Those proposals undermine local democracy. In essence, we believe that the Government should treat local government as local government and not as local administration.

Thank you very much, Mr Watson. Mr Watson made reference to the council tax reduction scheme helping lower-income families. I clarify that, although we may indeed ask questions about or comment on that topic, we will pass on any such information to the Social Security Committee, which is looking at the statutory instrument in relation to that area.

I also want to put on the record the terms of reference of our call for evidence, although that does not restrict witnesses from making additional comments. We asked:

“1. Overall, do you support the principles of the Government’s plans to reform Council Tax?
2. To what extent will the Government’s proposed reforms make the system of Council Tax fairer?
3. To what extent will the changes be straightforward for local authorities to implement?
4. Do you support the Government’s planned changes to Council Tax reductions?
5. Please add any other comments on any aspect of the proposed reforms.”

We have received written evidence around those headings, so thank you for that. The first question is from Graham Simpson.

I start by declaring an interest, in that I am still a councillor in South Lanarkshire. I have a question for any or all of the witnesses. What will the costs of implementation be? At the end of this, will any councils lose money?

I would be delighted for all five of you to answer, but I should point out that you do not all have to. Who would like to start?

We hope that councils will not have lost money and that the committee will support the suggestion that the Government should pick up the tab for any administration costs. We believe that there will be administration costs and there is on-going work to gather those costs. Our plea is that councils do not lose out and that the administration costs are picked up by the Scottish Government. Perhaps somebody can give me technical coverage on how they believe those costs will be accumulated, but at the moment they are being gathered up.

As Councillor Keenan says, costs are being collected just now. Every council in the country would probably say that it is not fully funded for the administrative costs of the council tax reduction scheme at the moment, so we would stick with the request that the changes be fully funded. I refer to my earlier point about water, because the cost of system changes is a fundamental issue. If the multiplier for the council tax band is not to apply to water charges, there is a possibility that we could end up with two different sets of bills. Although we are collecting information, whether water is to be treated differently from council tax is a major point on which clarification is required. At the moment, there are huge efficiencies in collecting both charges in a single bill. If you introduce differential charging, that will create a major problem.

To add to Councillor Keenan’s comments on administration costs, there will obviously be an additional case load in applications for council tax reduction and there will be a processing or administrative cost for that. There are also likely to be more people contacting authorities to say that they do not understand the system, and there will obviously be an administrative burden in dealing with that. Following on from that, there could also be issues around people lacking the ability to pay the increased charges, which could spill over into a cost for councils.

We are undertaking an exercise at the moment with a number of representative councils to look at the costs. Scottish Government officials are quite well aware of that and are anticipating receiving something from us fairly shortly. We are committed to producing something that is robust and recognises the genuine additional costs that we think councils will incur. That work is happening at the moment.

The only small point that I would add is that we represent the staff who would have to administer the changes, and they are already under considerable pressure as a result of the salami slicing of staffing levels, so any additional workload would need to be funded.

What you say is interesting, Mr Sharma. Do you have a timescale for that piece of work?

We will produce something for the Scottish Government within the next week or so. We will then need to discuss the process for how those costs are looked at further and how that feeds into any other spending review discussions that are going on at the moment. We will need to find a way of making it part of that process.

Are you trying to get an overall figure of additional costs across Scotland, or are they authority by authority?

10:15  

We will work up the costs from the sample. We have tried to make sure that the sample is representative, to cover city councils, rural councils, and the different types and scales of council. We will build that up to give a full Scotland picture and put that to Government officials.

It would be useful for the committee to have that information when it is ready, Convener.

Absolutely. Alexander Stewart has a question specifically on that point.

For the change to work effectively, a good communication policy will be needed at council and at Government level. I am not aware yet what the Government plans to put out, but what are councils planning to deal with in their own areas to ensure that there is a good communication network between councils and their taxpayers and that there is no confusion? Otherwise, councils will get an awful lot more phone calls to their call centres, including calls about relief, that staff may have to deal with.

Time is tight between now and the implementation. What areas of communication are in hand and what areas of communication are potential problems and pitfalls?

We believe that, as it is the Government’s tax that will increase the extra burden on the bands from E upwards, it is the Government that needs to clearly publicise what it intends to do and make sure that individuals across Scotland know exactly what is expected and what they will pay. As you have heard, we are unsure as to whether the multiplier will be added to water charges; if that is the case, that will be another part of the communication that the Government will need to put out.

We feel that it is the Government’s responsibility; it is the Government’s tax and the Government’s programme of work that it intends to fund through using local government. We think that that breaks the link between local tax being used in local areas, because tax may be collected in one area and handed out in other parts of the country.

We will perhaps have more comments on that in a moment, as some other members want to ask about public awareness and communication. To finish Mr Simpson’s line of questioning: have there been any discussions between COSLA and the Scottish Government in relation to administrative costs?

I have not personally been part of the spending review team, but I imagine that a meeting will probably happen today. It is something that the COSLA president will raise with Derek Mackay. It is on our radar to make sure that we try to get that resolved.

It has not been formally raised yet, but you intend to do that, possibly today—is that correct?

I am not part of the team negotiating on the spending review at the moment. However, as we see costs coming in the direction of COSLA, we are usually quick enough to try to address them with Government.

The committee will be keen to know whether the Government is listening to the representations that COSLA is making. That is why I specifically asked whether those representations have been made yet, but you are not in a position to confirm that. It will be helpful to get that information, as that will inform committee members when we take evidence from Derek Mackay, the Cabinet Secretary for Finance and the Constitution—we do that next week, I think.

There is sometimes a running joke with MSPs that when additional responsibilities are put onto local government, COSLA goes high with the costs, the Government goes low with the costs, and the actual costs sit somewhere in between. It becomes almost a negotiating position with regard to cost recovery.

In those discussions with the Scottish Government, will you share with its officials your modelling work on costs and see whether you can agree the methodology and approach and framework to that, rather than just a number emerging?

It has always been the case that we would share the methodology on how all that is collected. You heard from Jonathan Sharma how we intend to work out the figure that we mean to present. We are not trying to hide anything in the costs that we present, and we would not use overinflated prices when we try to recover the actual costs. However, it will be a matter of opinion.

Of course. I just wanted to give you the opportunity to put that on the record.

My expectation would be that through COSLA collating the information there will be a degree of a sense check applied to the figures, to see whether a consistent approach is coming through from councils and whether the figures look reasonably robust and justifiable.

From my experience of Government funding, I recognise the point that you make. I have been aware in the past of fairly robust challenging from civil servants on what local government is putting forward, and, equally, of a fairly strong defence and justification of figures. I anticipate that a similar sort of discussion will take place.

Before putting forward figures, it is important that that sense check is applied to them.

That is really helpful.

Mr Manning, you represent four local authorities that are not in COSLA. Are you letting COSLA lead on the issue? Are you looking at costs for your local authorities? What is happening with the Scottish Local Government Partnership?

We are looking at costs for our authorities. What I can tell you is reflected in our submission. The software suppliers with which we are working have advised that the main amendments should be deliverable in the necessary timescale. The risk—which is what makes it difficult to define a cost—in part relates to the waste and waste water issue. As we said in our submission, if we are left in a position in which we must maintain dual multipliers—different multiplier rates for water and for council tax—that will be an additional and significant challenge. That uncertainty prevents me from giving you a definitive figure.

To be fair, we are not asking for the figure. We are asking that those discussions take place with the Scottish Government.

Will the methodology that the Scottish Local Government Partnership uses be the same as the methodology that COSLA uses?

In essence, we are working with the same software suppliers and we will be dealing with the same administration issues, so I do not see that there would be any difference in the methodology of working out the cost.

We should not expect a deviation in the figures. I take it that a conversation on that takes place between the four local authorities and COSLA.

In terms of dialogue between the four local authorities and Government on spending review issues—

Sorry, I meant dialogue with COSLA.

I am not involved in direct dialogue with COSLA on this. We make representation to the Government through the settlement and distribution group.

I welcome the panel to the committee. I will follow up on awareness, which Alexander Stewart talked about. There has been no change in the multiplier since 1993 and there has been no change in the rate of council tax since the freeze in 2007. New council tax reduction eligibility criteria are being introduced. There is a question of redistribution of receipts to other local authorities and there is the question that Paul Manning raised about water and sewerage charges.

There are two distinct elements of public awareness here. One is general public awareness that these changes are coming into play. The other element is how that is communicated directly to council tax payers. To what extent do we need a public awareness exercise that alerts people to the fact that the changes are being made, so that they can anticipate them? To what extent can you communicate on the council tax bill that you send to people the actual changes and why they are being made?

One comment that we got on the tax commission, which I sat on, was that council tax payers did not feel that they were getting as much information as they could, or that it was not presented in an easily digestible way, with modern infographics, and so on. Is there a job you could do there?

My first question is whether there should be a general awareness campaign, so that the public can know that all those things are happening.

I will come to Dave Watson first, because your members on the front line will have to deal with the telephone calls and explain why bills have changed and increased.

As we said in our submission, in our evidence to the commission and elsewhere, a challenge with council tax is that people receive a bill. It is not like VAT or income tax, which are deducted at source. People will face, in many cases, quite big changes.

There is huge concern among a range of staff—not just those who work in call centres, whom Mr Stewart referred to, but also staff on the front line, in one-stop shops and places where people come in off the street and raise issues—that there will be heightened concern when people get their bills. People do not always understand their bills and they have experienced a very long council tax freeze. Their bills will change, albeit that there has been change to the water element, as colleagues have indicated.

More generally, our annual survey of abuse and violence demonstrates that there has been an increase in recent years in both verbal and physical abuse towards local authority staff. Incidents of abuse have gone up fairly significantly year on year and we are clearly very concerned about that.

We accept that, at present, there are a lot of uncertainties and things to be sorted out and that therefore the detail might not be available. One cannot, however, start too soon with that type of communication exercise. We do not care whether it is the Government or councils that do it, but we urge a major communication effort to explain the changes so that our members do not get grief on the doorstep.

If a council chooses to put up council tax, and is held to a maximum of 3 per cent, a band E property in its area could see its tax going up by 10.5 per cent. It is incumbent on the Government to make sure that it takes responsibility for its part of the increase, the 7.5 per cent. It needs to communicate its responsibility for that increase to people.

Councils will try to explain the proportion of the increase that relates to the Government’s policy in the letter that goes out with council tax bills, but that information will be limited. The Government needs to take on the responsibility of making sure that people who are likely to see a 20 per cent or so increase in their council tax because of the high band for their property, and have had a council tax freeze for so long, know that the change is happening and that they should expect an increased bill. Any increase of that level will no doubt be alarming, no matter how much money we believe that someone in a band E or F or whatever property has in their pocket. People live to their expectations and will not appreciate such bills coming in their direction. It is the responsibility of the Government to make sure that they are aware.

I strongly advise the Scottish Government to take responsibility and ownership of the policy and to explain clearly what the policy objective is. Councils will do what they can, but will give 32 different messages.

In my submission to the committee, I made the point that there needs to be clear accountability for any system to work well. I fear that confusion will be created in the public mind if councils take the opportunity to increase council tax by 3 per cent—the Government cap. There will not only be the impact of the multiplier; there will also be an increase of up to 3 per cent. That will cause confusion in the public mind.

We have already seen how the press have reacted to the fundamental policy change of the redistribution of the £100 million nationally, with funding from one council area to go to another, and how that change has been perceived. That potentially presents us with additional challenges in collection, not just because of the scale of the increase but because of how the public will perceive what has, until now, been a local tax for local services being in effect redistributed, with the money going to other council areas. There will need to be very clear explanations so that the public understand how they should react.

At the risk of repeating what Derek Yule said, there is likely to be confusion over the increases in people’s bills. On behalf of the four councils, we would look to the Government to play a part in publicising the reasons for the increases and the logic behind them.

I have a supplementary on that point, but does Andy Wightman want to develop this line of questioning first?

10:30  

You say that the Government has been silent on any changes to the water and sewerage charges. Therefore, given that the order has been laid, can we assume that any changes to the water and sewerage charges would require an order under the Water Industry (Scotland) Act 2002? Orders must be laid in good time to be ready for the next financial year so, if no such order has been laid and no intimation has been given that it will be laid, is it fair to assume that there will be no change to the charging regime for water and sewerage?

I have no reason to doubt Mr Wightman at all but, if accurate, that seems fairly clear.

Do the witnesses have any more information on that? They said that they did not know.

We do not know. The point that you make is entirely right. The issue is the uncertainty. My understanding is that a separate order is required for water charges, which are set nationally. We are trying to differentiate between the charge and how it is applied at the moment to the eight council tax bands. The banding is what we probably have most uncertainty about.

My anticipation was that the multiplier would apply to water and sewerage charges as well and that significant additional income would be raised through them unless the Government reduced the rate. I could not tell you offhand what the proportion is but, if the multiplier will raise an extra £100 million in council tax, a significant additional sum will be raised through water and sewerage charges unless the rate is lowered.

Is it your understanding that the legislative position is that an order would have to be laid for a multiplier to be applied to water and sewerage charges?

That is my understanding, but we need clarity on it.

It has not happened.

No.

Have you asked the Scottish Government about it?

No, CIPFA has not raised it with the Government yet. I think that the point has been raised with civil servants through COSLA, so they are aware of it, but there has been no response yet. We expect clarification on it from the civil servants in the water industry division of the Scottish Government.

I hope that we will get clarity from the Cabinet Secretary for Finance and the Constitution next week. However, no order to apply a multiplier to water and sewerage charges has been laid—if one is needed—it has not been intimated that that will happen and, as far as we understand, the figure of £100 million being raised is not based on water or sewerage charges. It appears that there is not going to be an order, so could it be a red herring?

I do not think that it is a red herring in terms of the administration of the water charges, because there are two separate elements: how much the charge is and how it is applied to the property bandings as they stand.

Either way, there is uncertainty and we need clarity.

Yes.

As you said, the bands are not changing. There will still be eight bands and Scottish Water charges a rate for each band. The question is whether there will be an impact on Scottish Water’s charging regime, which might not require a separate order. It just might be Scottish Water that decides that for itself. I do not know.

That is right. It is generally a matter for Scottish Water. The question that I am posing is what the implications are if we apply the existing council tax bandings to water as well and whether the multiplier will be applied to the element that is charged for water.

If the new multiplier is not applied to water, will it make it all the more confusing for you to implement?

That would give us a major problem. We would envisage a doubling up of the bills. We would have to issue separate bills for water and sewerage or there would be significant software implications. That would give us concerns about the timescale for implementation.

We definitely need clarity on that point.

Yes.

From what you say, gentlemen, am I right in thinking that you would like to be able to say when you send out a council tax bill that a certain element of it is down to the Scottish Government and another bit is down to the local council?

That would be fair. I hope that the Scottish Government will put out a publication or undertake an awareness-raising programme to make people aware in advance of the council tax going up. Once the bit that is set by the Government goes through Parliament, it will be in play. The other part of the bill will be whatever the council increases its council tax by within the cap that the Scottish Government sets. We believe that the Government should go out to people early and make sure that they are aware of the changes.

What I am asking, Councillor Keenan, is whether, when the council tax bill goes out—the finance directors here may know the answer to this—you are allowed to separate it out in the way that I am suggesting.

I will answer that from a political point of view. A few years ago, Aberdeen City Council did something differently and was challenged, but I do not think that there was any backlash from that. I suggest that a council would be in a position to do what you suggest. The 32 different messages that go out are probably based on 32 different political positions; hence the message would be better put out by the Government, in which case it would be clear.

I do not think that public awareness is going to be an issue. There will be local authority elections next year, and there will be plenty of coverage of the council tax changes in the media. No doubt, political parties will mention the matter in their campaign literature.

If you are suggesting that the Scottish Government should say that it is responsible for an X percentage increase in council tax for band E taxpayers, for example, should it not also send out a letter to taxpayers in bands A to D saying, “By the way, we’re not putting your tax up—it’s the local council’s fault that it’s going up by 3 per cent”? That is the other side of the coin. Surely that would be interpreted as being far too overtly political. If you are suggesting that the Scottish Government should take the blame for putting council tax up for people in bands E to H after a nine-year freeze, should it not also take the credit for continuing to freeze it for people in bands A to D?

I have never been able to influence what the Scottish Government puts out in its communications, but I think that it is incumbent on it to make sure that it tells people about the taxes that it intends to implement. If it wants to go a bit further than that and claim credit in some way, it should feel free to do so.

Lots of members want to ask supplementary questions on the issue—you have got their interest with your answers.

As we say in our evidence, our position has always been that the council tax is difficult politically. We understand the challenges for politicians, which is why we have always argued that cross-party consensus should be sought on reform of the council tax. Frankly, our members would be less interested in who is to blame. Given that the Scottish Government is—in our view unwisely—ring fencing a chunk of the money, councils are entitled to explain that. However, when the tax is going to be increased, particularly after such a long freeze, it is important that the Scottish Government and councils focus not just on the fact that council tax is going up but on what it pays for and what it is doing. Good communication is about saying to people—although it is a difficult message—that council tax is a good thing that pays for things that they and their children want, including education, social work and everything else. We should focus on that message in any communication instead of getting into a political rammy about who is responsible for what bit of the tax.

I do not know whether Mr Manning wants to add to that. How do we avoid a political rammy?

That is a leading question.

What can you do to avoid that happening, Mr Manning?

You personally, Mr Manning.

I feel put on the spot now. There is an obligation to send out with the council tax bill what amounts to an explanatory accompanying note or letter that details the background to the council tax figure and local authority expenditure. Given that this will be the first time in almost 10 years that there will be any increase in council tax, and it might come from two different directions, I would have thought that each local authority would have to take steps to say, “This amount relates to a decision taken by the council, and this relates to a decision taken by the Government.” They would do that in the accompanying explanatory material that goes out to people; it would not be on the face of the council tax bill.

May I check something? I know that the witnesses might have wanted the Scottish Government to go further, but I assume—perhaps I should not do so—that they support local authorities being able to increase the council tax again. Is there a general consensus on that? You are indicating that there is. The consensus might splinter when it comes to whether the increase should be capped at 3 per cent, and we can explore that later, but there is a general consensus that council tax should start to increase again.

Is there also a consensus that the multipliers for bands E to H should be more progressive than they have been in the past? Let us put to one side the issue of who gets the money and how it is used. Does anyone disagree with increasing the multipliers for bands E to H?

I do not disagree with that, but it does not go far enough. There will be a number of properties across the country that have been extended by an endless amount, and—

We will come on to that, Councillor Keenan—

When it comes to discount schemes or whatever, local government’s proposals had more checks and balances, to ensure that the approach was delivered much more fairly.

I want to get to a final position on this. Everyone here agrees that local authorities should be able to increase their council tax again, should they choose to do so. Let us put revaluation to one side—I have no doubt that we will come on to that this morning. I think that everyone agrees that there should be an alteration to the multiplier for bands E to H. Does anyone disagree with that?

It is not a case of just doing bands E to H. There needs to be a review across all the bands. At the moment, a £400,000 house pays only three times as much as a £40,000 house pays. The Scottish Parliament information centre’s briefing and the commission on local tax reform’s report showed a number of different models, and we urge Government to look at those models rather than just four bands. If your question is whether we are in favour of greater progressivity, the answer is yes.

COSLA does not agree with changing only four bands and thinks that the approach needed to go further.

My point is that everyone agrees that there should be council tax increases again and that there should be greater progressivity. We are debating whether the current Scottish Government proposals go far enough, and I put to one side the issue of local democracy in relation to how the money will be spent—I think that Elaine Smith will ask about that. Over the past 20 minutes, everyone seems to have agreed that council tax should go up and should be more progressive, and that is going to happen, but we seem to have got into a blame game about whose fault things are instead of having collegiate working by the Scottish Government, COSLA and the Scottish Local Government Partnership.

Have COSLA, the Scottish Local Government Partnership and the Scottish Government had discussions on how they can work together to promote the system? Heaven forfend that the council tax bill that drops through every household’s letter box could contain an insert that was agreed between the Scottish Government and each local authority—and heaven forfend that such an insert could be standardised, to make it more efficient to produce. Is that outwith the realms of what can be achieved? Can we not take some of the politics out of this, where we can?

COSLA wants local government to have the ability to decide whether to raise or freeze council tax, without Government imposing such things on it. That is COSLA’s position. Some of our members might have been able to continue the council tax freeze for a period, and others might have preferred to put the council tax up by more; it is about local democracy and local accountability, and what the Government has presented us with does not allow that.

10:45  

Elaine Smith will ask the next question, which is on that matter, but, to be fair, that is not the question that I asked. The question that I asked is whether there has been any conversation between COSLA or the Scottish Local Government Partnership and the Scottish Government in which it was said, “We all agree that the direction of travel is correct.” We know that there are significant caveats in relation to revaluation and to whether all the bands should have been looked at rather than only bands E to H. We can have discussions about the council tax reduction scheme and how we move on in relation to it—I hope that that question is raised by members here today—but, in some respects, there is significant agreement between Government and local authorities. Have local authorities via COSLA or the Local Government Partnership spoken about a joint approach to publicising the changes? There is a debate on who pays for it, be it the Scottish Government or otherwise—I am not suggesting that councils should necessarily pay for it—but have there been any representations to the Scottish Government saying, “Let’s have a joint approach, and let’s take the politics out of this, because there is a huge amount that we agree on”? Councillor Keenan, have there been any representations?

I do not think that there have been. There has not been any move from the Government, either, to suggest how it would prefer us to handle the changes.

I will ask the same question of Derek Mackay next week. Mr Manning, I mentioned your organisation as well.

I am not aware of any dialogue.

Right. Do you think that it would be a good thing for the Local Government Partnership to do?

It is a step that represents common sense.

That is really helpful. Do you think, Councillor Keenan—

I also think that it would probably be a good move.

You think that partnership working could still happen even on this. Mr Yule, I am sorry—I cut you off.

My comment is from a practitioner’s perspective rather than a political one. I think that it would have helped if there had been an early dialogue so that we understood the Government’s thinking behind the changes. They appeared as an announcement that rather focused on the £100 million, and then we got into all sorts of debates about what it meant for local accountability and what not. We would have liked to have understood why the figure was what it was and what the political directive behind it was.

One of the accusations or jokes that is always made about accountants is that, in looking at an issue, they start from the point of view of what the answer is. It struck me that the answer was £100 million, and the Government worked backward to see what changes would have be made to the multiplier to get there. We would have liked to have understood why that figure was proposed. As I said in our submission, we would like to go that further bit.

We are more than happy to work with the Government on how we can best implement the changes.

Thank you. That is helpful to put on the record. I thank Elaine Smith for your patience. Before we move to the local democracy angle, Ruth Maguire has a final supplementary.

We have moved on a bit, but my question relates to the evidence of the directors of finance that it would be fairly easy to implement. We have also heard some stuff about complications in collection. I want to be clear on what those complications are—whether they are to do with the clarification that is needed on water and sewerage and whether there would need to be two bills. Intuitively, the thought of having messages about where people’s tax was coming from on their bills sounded like it would not be helpful in a practical sense—if we take the political out of it.

From the discussions that we have had with software suppliers, we do not think that it would mean a particular material change in the core structure. There are very few council tax systems and only a few suppliers of the software. It seems to us to be a fairly straightforward change to make.

Without going back on what I have just said, the big complication would be if there was, in effect, a different multiplier of bandings in relation to water charges. We strongly emphasise that there are economies of scale of billing on behalf of Scottish Water. For water and sewerage, it is a much more effective way of collection, and we would certainly want to see that continue. It was just important for the committee to understand that that issue is what we would anticipate to be the single biggest challenge in implementing the proposed changes.

Does anyone else want to come in? Alexander Stewart, I am sorry—I lost you off my list.

We have had such a lengthy freeze. Council tax collection varies across the 32 local authorities, but it has been quite standardised because of the freeze. Is it anticipated that, when the new bills go out and the charges change, there could be a backlash that could mean a reduction in the collection rate?

I would flag that up as a risk. How big a risk it is, I am not entirely sure. We have had some insight into the Government’s calculation. It assumes a 97.1 per cent collection level, which is a Scottish average. Given that we are looking at the upper end as regards ability to pay, we would see this group as a stronger group from the point of view of payment. I know that my authority has a significant proportion of customers in the four bands in question who pay by direct debit. It is a risk.

My key point is about accountability and how people perceive the fairness of the changes. We are talking about significant increases. I come back to the issue of communication. If people understand why they are being asked to pay more and accept that, we will have more chance of collecting the tax. We need only go back to the time of the poll tax or community charge to see what happens when there is a tax situation that people do not accept. I am not for a minute suggesting that the proposed changes are remotely like the change that was brought in with the introduction of the poll tax, but that example highlights the fact that, whatever the tax, it must be perceived by people to be fair and understood. Otherwise, there is the possibility of challenges.

Does any of the witnesses have anything to add? It seems not, so we will move on to Elaine Smith.

I thank all the witnesses for coming along to help us with our scrutiny of the order. If local authorities decide to use the full 3 per cent, they will justify that by saying what they intend to spend the money on and explaining their decisions to the communities that they serve. I will therefore set that issue aside for the moment.

Last week, we took evidence on the changes to the higher bands and asked whether what was proposed was more progressive, less regressive and fairer. I would be interested to get comments on that.

I have specific questions for Dave Watson but, before I ask them, I will ask Councillor Keenan about the issues of blame, justification and who is responsible for the extra element that people will be paying, which were explored earlier. Would councils be happy to implement the changes to the higher bands and would they think that the proposal was more progressive if they got to decide where the funding was to go? Is it local democracy and local decision making that is the issue?

What is proposed could be seen as reverse ring fencing—I think that that term was used last week—whereby the councils impose a higher charge and the Government, rather than giving councils extra money for a policy decision that it wants to be delivered, takes that funding and uses it to deliver the attainment fund. Is that the basic issue?

There is a real issue with local democracy. We are elected and we should have the ability to make decisions to deliver for the people we represent. At times, a collective approach is needed in the best interests of Scotland. That could be discussed, but it appears that the changes that we are considering are being imposed on local government. The challenge of improving attainment levels is at the forefront of all local authorities’ minds and we are looking at ways of delivering that.

Mention was made of the fact that things could be done differently if there was a partnership approach and there was no apportioning of blame. There would have been an opportunity for that if sufficient discussion had taken place. COSLA and members of the Scottish Government got involved in the commission to decide how to replace the council tax; we do not think that what is proposed goes far enough. In some respects, it resembles ring fencing. Other councils might say that that is the case, because there is a demand from the Government for teacher numbers, police numbers and other numbers to remain at a particular level, with the result that local spend is curtailed. If there is a demand from the Government, there needs to be some involvement of local government if we are moving in partnership together.

Would you be more relaxed about the change to the bands if your members got to decide what to do with the extra funding?

We in local government would prefer to deliver fairness—hence the number of checks and balances that went into the proposals that we put forward jointly, which would have meant an ability to discount in certain areas. We believe that allowing that amount of local flexibility would have made a difference and brought about a much fairer tax.

Government policy is very much a political issue, but it is probably fair to say that councils generally would have welcomed additional flexibility. Budgets are coming under greater and greater pressure and that is where we get the difference between local spending priorities and national Government priorities.

I flag up the direction of travel of the community empowerment policy, because the Government has indicated that it wants 1 per cent of council budgets to be determined locally. I have a question about where that sits against a proposal that we might see as representing a greater centralisation of policy. There seems to be a slight conflict.

If 1 per cent of spending is to be determined locally, how does that sit with a policy that involves raising council tax for a national policy of redistribution? There is a potential conflict, which comes back to the point about communication and how the varying policies fit together.

To echo what Derek Yule said, if the funding was to be given to local authorities or if they had the discretion to use the money, it would provide much needed flexibility at a time when our finances are being squeezed. However, the perception is that it will go towards a centrally determined priority.

If extra funding was found for the centrally determined priority that was not the funding from the local bands, would that be more acceptable?

If separate money came from the Government for the local government settlement, that would be more acceptable.

That would be a move back to ring fencing, but with extra money for a Government priority that was to be delivered by local agencies.

Yes—that would be Government money funding a Government priority.

I have a question for Dave Watson. On the same theme, Unison says in its submission:

“While we are supportive of the government’s aim to close the attainment gap, ring-fencing money raised by local taxation also contravenes the principle of local control over local taxation.”

Will you expand a bit on that?

Our position is that we have always opposed the ring fencing of funds. It can be argued that the proposal is a sort of reverse ring fencing but, nonetheless, it is essentially a form of ring fencing.

The Scottish Government made moves some years ago to reduce a lot of the bitty bits of funds and we welcomed that. However, when it put them back in for police numbers, teacher numbers and, of course, the council tax freeze, that was all a form of ring fencing.

Local government is not the same as a non-departmental public body or another Government department. Councillors are directly elected; they are responsible to their electorate. I think that Andy Wightman and others have made the point about the European Charter of Local Self-Government. There are local taxation principles that apply across Europe and elsewhere—local government raises its taxes for its local priorities.

If central Government wants to identify its own priorities and influence policy, it can do that in a number of ways. It does not always have to do it with money. There are other ways—it could set national standards, for example. We have no problem with that. However, local taxation should be applied to local priorities and councillors should be responsible to their electorate for local decisions.

11:00  

The same question arises. For example, the Government is responsible overall for education and takes the blame for what goes wrong with education across Scotland—if children are not attaining, the Government is subject to questions in this place, day in and day out. Given that education is delivered at local level, if the Government found what it identified as extra funding for what it wanted to prioritise, would you consider that to be ring fencing and would it be a problem?

In my many years in this role, I have heard ministers frequently use the “Not me, guv” defence when approached on such matters. That is why we have NDPBs and many other things, which have been set up for the same purpose. However, local government is different because of its direct elections. The Government approach needs to reflect that.

A debate that we have not really got a grip on, although we are touching on it in respect of funding, is about the wider issue of local government’s role in relation to central Government’s role. Inevitably, there are different pressures under different Administrations. We are clear that local government is a good thing and that the subsidiarity principle should apply to local decision making, which means that decisions are taken at the lowest possible level. I do not think that taking money out of local taxation—money that is raised locally—is consistent with that principle.

Your submission says:

“The reformed council tax is still a regressive tax.”

Will you comment on that?

I remember that the committee has had interesting academic debates with professors on the meaning of progressivity. I am a mere lawyer, so I will not risk engaging with the finer points of that debate. The council tax is not purely progressive, although it is possible to make it more progressive. The chart that SPICe has helpfully extracted from the commission on local tax reform shows a way to have what I would call—to avoid any academic rows—a more proportionate allocation. If we applied that sort of proportionality, we would get a better scheme.

It is helpful to have all that on the record. The question that we asked in our call for evidence—it will be in your submission—was whether the tax will be more progressive or less regressive. That was last week’s debate. We asked whether the reformed council tax would be fairer and the answer that we got was, “Yes—a bit.” I do not want to misinterpret what you are saying, but is that a reasonable summary?

I am always happy for you to put words in my mouth, convener. The position will be slightly fairer, but it is not surprising that, as always, we want to go further.

I absolutely understand that. I do not want to put words in the mouths of my MSP colleagues either, but I am aware that we have not yet touched on council tax reduction or revaluation, and we have only about 15 minutes left. Let us see what they ask.

I will ask about those points. I am intrigued by the fact that the submissions talk about the need for local government to raise about 50 per cent of its income on its own—that has been consistent across the board for a number of years—but I wonder how realistic that is.

The last line of the Unison submission says:

“it’s time to stop tinkering and act on the recommendations for a new fair property tax.”

Over what timescale could that be delivered, even with cross-party support? The figures that have been presented show that 15 per cent of local government income is from council tax and 7 per cent is from charges. Unless we were to return non-domestic rates to local authorities—there is an argument for that, although there are issues about how much Edinburgh would raise relative to North Ayrshire, for example—the share of income from council tax would have to be increased from 15 to 43 per cent, which would mean tripling it. Unless a concomitant reduction was made in income tax—over which the Scottish Government now has powers—the result would be horrific for council tax payers, as I am sure you appreciate. We can say that it would be great for local authorities to raise 50 per cent of their income, but how realistic is that?

To raise a local authority’s budget by 1 per cent—all else being equal—a council would in effect have to raise the council tax by 6.6 per cent, because of the gearing effect. Is that a blunt tool that has passed its sell-by date? Should we look at other, more innovative ways of funding local government?

Who wants to take that?

Dave Watson will go first.

You will have read our submission. Our view is that a broader reform of the council tax is needed, which is why we think that the proposed tweaking does not quite do it.

We should remember that the council tax used to form 20 per cent of income; it is now down to 15 per cent because of the council tax freeze. In fairness, charges were not previously as high as they are now. Some of the gap has been plugged by charges, which we argue is a regressive way of raising local government funding.

We favour the return of business rates to local government. We have long argued that that should happen. The words “return of” are important there and, in fairness, that was the approach that the Government took a long time ago.

There is therefore a case for broader reform. We favour the Burt proposals for a property tax. That was a thorough piece of work that has been usefully updated by the recent commission.

We can look at business rates and at having a new property tax that might raise different sums of money, and there will always be an element of charging. We have made the point that it is true that the risk with a lot of these schemes is that rich areas gain more than poor areas. That is where equalisation comes from.

Equalisation schemes have been used in the past. They are not easy because, inevitably, there are winners and losers. One reason for that is that we tend to focus equalisation schemes on whole local authorities, and the problem is that our local authorities are a rather strange mix of big regions and quite small areas.

I would restructure the equalisation arrangements by going down almost to postcode areas and building them up. That might not result in massively different changes, but it would be more realistic because, even in council areas that generally have a high proportion of low-income households, that is not true for the whole council area. Glasgow has wealthy parts and lots that are not. The same is true in Kenneth Gibson’s area—there are big differences between the three towns and Largs. Building up a formula that was based on local postcode areas would provide a more realistic formula that targeted resources where they are most needed.

If you gave me a blank cheque and we rewrote the whole local taxation system overnight, we would give councils the power to raise additional local taxes—the bed tax is a well-known version of that. There is merit in looking at things such as the land value tax, but not as a replacement for the council tax, because that would be difficult for a lot of the practical reasons that our members who work in valuation have pointed out.

If we pulled all those elements together, we could get somewhere fairly close to 50 per cent. That is an arbitrary figure, but all that we are saying is that more money should be raised locally and that we need a broader reform on—I hope—a cross-party basis, although that might be my wishful thinking. That is what needs to happen for us to get closer to that local government ideal.

That approach would have to be commensurate with a reduction in national taxation; otherwise, your members and others would end up being burdened by additional taxes across the board. Do you see that as a concomitant exercise?

Yes and no, because we favour a property tax. A local income tax, for example, would mean a double hit on working people. Having a basket of taxes, as it is sometimes called, minimises the risk.

Mr Gibson, it is only reasonable to give the other witnesses an opportunity to talk about how we should broaden the tax base to get close to 50 per cent. Councillor Keenan might be keen to talk about that.

COSLA had a commission on strengthening local democracy and its paper contains quite a number of thoughts on how we can get closer to local government having tax-raising powers for 40 to 50 per cent of its income, because we believe that we play a vital role in the government of the country.

More than a year ago, we made an offer to the Government that we would do modelling work on business rates, because we realise that there would need to be some equalising factor across areas, as some industrial areas can raise much more.

We would look to do that work but, because that opportunity has not been taken up, we are probably a year or so behind where we could be. If that joint work was going on, we would have an indication of where the figures are. COSLA would still be keen to do that work if the Government took it on board, but we would like to see a better property tax and more powers.

Although some council colleagues will not be happy about the 1 per cent that local areas are deciding on, I do not have an issue with that. I think that decisions are best made as locally as possible, and the centralising agenda from the Government is not overly helpful.

Does Derek Yule or Paul Manning want to add to how we can broaden the tax base?

Most of the points that I would have made have been covered. Mr Gibson highlighted the fact that, if we wished to move nearer to a 50:50 split, returning business rates to local control would probably be the only way to do it. It is probably fair to say that we have mixed views about that, because we recognise the associated financial risks. I am aware of some areas in which major closures could have a significant impact on a council’s finances if they were exposed to that risk. Although the direction of travel is probably welcome, we have to recognise the associated risks.

I am keen to explore additional means of taxation. We are quite interested in pursuing the bed tax or tourism tax in my council area. Having seen the way in which the local hotel industry has responded to supply and demand and to variations in price, I believe that that is certainly worth exploring.

I apologise for the fact that we are running out of time. A few witnesses have mentioned revaluation and I know that there is evidence on that in submissions. Could one or two of you say a little about revaluation, which the Government is clearly not doing? We got evidence on that last week, so it would be good to get something on the record today.

We strongly believe that there should be revaluation. I accept that some risks are involved in that, but with responsibility there always comes risk in terms of volatility. The communication exercise that we talked about earlier is crucial, but telling people that property is valued at 1991 levels makes it twice as difficult to make the change. When 57 per cent of properties are in the wrong band, the committee can imagine what people are saying to our members. If you can tell the Government that we really need to tackle revaluation and get it right, we can start to talk about regular revaluations. My question is: when is the Government ever going to do a revaluation? Are we going to wait another 10 years or another 15 years? We have to do it now.

It is good to have that on the record.

We are talking about delivering fairness. If somebody has extended their property by three or four bedrooms and added endless facilities, the chances are that it should be in a much higher band. They ought to pay what they should towards the services that they use from local government.

I apologise for not asking the other witnesses to contribute because we are running out of time, but I know that Councillor Keenan wanted to put that on the record.

It has been estimated that an enhanced council tax reduction scheme will extend to roughly 54,000 households in bands E to H that have net incomes of less than £25,000—if I have got those numbers wrong, we will correct that on the record—under a tapered scheme, on which we have no details yet. Do the witnesses have any comments on that? I know that that is a bit like asking, “Are good things nice?”

I assume that you welcome the scheme, but I do not want to put words in your mouths. Mr Watson mentioned the challenges that are involved in implementing the scheme and getting it right and in ensuring that those who do not already get council tax reduction apply for it. We heard some evidence on that last week. Do you have anything to add?

There is probably the potential to incur another administration cost that was not there before. The committee would need to ask a director of finance to comment on where they see the costs that are involved in that. I would welcome anything that delivers to someone who is a bit poorer.

On the changes to the higher bands, the council tax reduction subsidy will have a mitigating effect for the people it covers, but its effectiveness will depend on uptake. People have to engage in order to know about their ability to get the benefit, and resource will be required to generate awareness so that people contact us.

That is now on the record. Mr Yule and Mr Sharma, this might be your last opportunity to comment. Do you want to add anything?

We are generally supportive. It is important that the Government recognises that there are people in the top four bands who will be impacted by the changes and whose ability to pay will be an issue. Points have been made about the additional administration work that will be associated with the changes. We recognise that but, in general terms, we welcome the proposals.

Mr Sharma, do you have anything to add?

We are collecting information from councils about the cost of administering the council tax reduction.

I thank all five witnesses for coming to the meeting. I am sorry that the last few questions were condensed; I wanted to give you an opportunity to put your views on the record.

That ends agenda item 1. We will hear from the Cabinet Secretary for Finance and the Constitution next week as we continue our evidence taking on the statutory instrument.

11:16 Meeting suspended.  

11:22 On resuming—