Local Government Finance Review
The next item of business is a statement by Andy Kerr, on the local government finance review. The minister will take questions at the end of his statement and there should therefore be no interventions.
I reassure the Rev Alistair Morrison that his voice was heard loud and clear, despite the fact that the microphone was not working too well.
We made a commitment in the partnership agreement to set up an independent review of local government finance. I am happy today to announce the remit of that independent review and I will confirm the membership of the review team to the Parliament in due course.
The support that we give to local government demonstrates that we are committed to the delivery of high-quality public services. We know that the people of Scotland deserve and expect services that are of the highest possible quality. They deserve and expect effective local services that are locally delivered by democratically accountable local councils. We have made a commitment to reform and modernisation and we have secured significant improvements in public service delivery through distributing record levels of resources to local government.
However, that is only part of the story. Around a fifth of local authority net revenue comes directly to local authorities from council tax payers. We all strive for a system of local tax that is as fair and reliable and as predictable and stable as possible and we need to ensure that we strike the right balance for the taxpayer and for local authorities.
It is fair to say that there are concerns about the current council tax system. Now is an appropriate time for a review. The review matters to the people who pay council tax, to local authorities and to the many services upon which we all depend. Local taxation pays for schools, for services for the elderly and the most vulnerable and for services such as the maintenance of roads, street lighting and refuse collection. Let us face facts: no one likes paying tax and any form of taxation has its critics. However, we must also face the fact that taxation is required to fund the services on which we, our families and our communities rely.
We will listen to what the review has to say and we will act. The review has a challenging remit. All the taxation alternatives are up for consideration. Each of the parties in the Parliament has a different position, as do members of the local government and business communities. The review will examine each of these alternatives: the council tax in its current form; a reformed council tax; a local income tax with a rate that is set locally; a local income tax with a rate that is set nationally; a land value tax; and options for local business taxation.
The review will be independent of the Executive. It will be free to consider the proposals that are put to it by the various parties that are represented in the Parliament and by other interested groups. It will include any model of local taxation that it considers appropriate. Each alternative will be examined carefully and rigorously; its strengths and weaknesses will be identified and the practicalities and wider economic impact of any changes will be considered in depth.
Now is the time for detail and hard work. I have given the independent review the task of considering each proposed tax against a defined set of criteria. It will consider the effect of the proposed tax on economic growth, because a successful economy is key to Scotland's future prosperity and first-class public services are possible only in a successful economy. It is vital that the wider economic impact of any form of taxation is fully considered. We must not forget that high taxes, whether they are levied nationally or locally, have an impact on the economy, on business and, of course, on hard-working families.
The review will consider whether the proposed tax takes account of ability to pay and is fair. We need to be sure that the amount of tax that individuals pay is reasonable given their circumstances.
The review will also consider how easy the tax would be to collect, whether income could effectively be predicted and whether the system would be stable. It will consider what the shift to a new system would involve. It is vital that we get those matters right for local authorities, which require stable funding if they are to provide schools, social care and roads, to take cognisance of changing needs and to plan effectively for the future of their communities.
The review will consider the collection cost of the proposed tax and who would collect it. The administration of council tax, including council tax benefit, has an obvious cost for local authorities, but what would be the cost of administering the alternatives? For example, the Inland Revenue and businesses that have Scottish employees might incur additional costs.
The review will consider the impact of any proposed change on the relationship between the tax and the benefits system. Under the current council tax system around a quarter of households receive council tax benefit at a cost of about £300 million to the Department for Work and Pensions. What would happen to that under a new system?
The review will also consider the impact of any proposed change on the relative contributions of local and national taxation to paying for local services. As I said, council tax payers currently contribute about a fifth of net revenue. Would that change under any reformed system?
The independent review will test each proposed tax. It will identify the strengths and weaknesses of each and it will make recommendations. We will examine its conclusions carefully.
As we all know, local government finance is complex. However, we must remember that the decisions that we take have major implications for the individuals, families and communities who receive and pay for council services. Any taxation system—local or national—will have implications for our economy and our businesses.
We know that it is not possible to look at local taxation in isolation—nor would we want to. Any change to local taxation will have wider implications for local government finance. I have therefore asked the independent review group to look at the implications for the rest of the distribution system; business rates; the mechanism for distributing grant between authorities; and the relationship of local taxation to domestic water and sewerage charges. Some issues are reserved to Westminster—council tax benefit for one.
Many will be keen to engage with the review and I am keen for them to do so. Only then will we have the full, thorough and independent review that we want. The remit of the independent review group is available from the Scottish Parliament information centre staff at the back of the chamber and it will be circulated to all local authorities today. It is also available on the Scottish Executive website.
The independent review of local government finance will have implications for every single person and business in Scotland. We all deserve a system of taxation that is as fair as we can make it, and we all deserve local authority services of the highest possible quality. The review will be comprehensive and it will represent the most serious consideration of local taxation in Scotland. I challenge this Parliament and the people of Scotland to engage with the review.
The minister will now take questions on the statement; I will allow around 20 minutes.
I thank the minister for personally providing me with a copy of the statement just before the start of these proceedings. The minister knows that the Scottish National Party has already presented a detailed policy in support of a local income tax. We will take the opportunity to present our ideas to the review. However, does the minister acknowledge that the reasons for the groundswell of opposition to the council tax are that the tax is not directly related to ability to pay and that bills rose by 40 per cent under the Conservatives and have risen by a further 34 per cent under the Labour Party since 1997? The inherent unfairness of the tax has been exacerbated by the burden of high bills.
If the minister believes in fairness, does he think it right for a senior citizen couple to pay more than £2,000 when their sole income is the pension? If he does not think it right, will he join the growing support for a local income tax?
I want to ask a specific question about timescales. As far as I can see from the papers that have been provided to us, the review and its remit have been announced but we do not yet know who will sit on the review group and we do not yet know when it will report. It has taken more than a year for today's announcement to be made; are we to wait another year—or two years, or three years—before we know the outcome of the review? Is this a case not so much of kicking the whole issue into touch, but of kicking it out of the political stadium in order to save faces in the Liberal Democrats' half of the coalition? The Liberal Democrats promised to axe the council tax, but not, apparently, until 2011. I would be grateful if the minister would clarify whether there is a specific time within which the review must report to the Parliament.
Quite correctly, I am limited in how I can respond to many of the points that Fergus Ewing has raised. On the day of the setting up of an independent review, it would not be very fair to slash and burn his proposals for a local income tax. Therefore, it is appropriate that my involvement in the discussion ensures that fairness and ability to pay, which are part of the remit, are considered by the review team.
As regards the timescale, the most important aspect is to get things right. I am sure that the Tories will agree with us on that. We do not want to introduce any short-term measures to mess about with local taxation; it is more important for the review to be carried out properly, in accordance with the criteria that are set out in the review process. Although it is envisaged that the review group will be a short-life working group, I think that it would be appropriate for the review team—once I have announced its membership—to report to interested parties on the timescales involved in the process.
It is tempting to engage in a dialogue about forms of taxation but, on a day like today, it is appropriate to say that the review will be open, accessible and thorough and will have deep meaning for everyone in Scotland. Getting local taxation right for the wider community is a very important part of our work as politicians.
On behalf of the real Opposition, I thank the minister for providing an early copy of his statement.
The fact that we are able to have two statements today makes it quite clear that it would have been possible last week to have had a statement on Scottish Opera from the Minister for Tourism, Culture and Sport and a statement on Reliance contracts from the Minister for Justice. As the real Opposition, we will continue to press those matters at a future date.
I note what the minister said. I heard him say that he was unable to announce the members of the review team. Why can we not have such an announcement today, when that would surely have made sense? The minister also talked about the council tax providing 20 per cent of council revenues, but he will be aware that council tax payers actually pay only 14 per cent of that amount; council tax benefit accounts for the difference. That is an important issue, of which the review should not lose sight.
Although the minister's statement says:
"We know it is not possible to look at local taxation in isolation",
in some regards the review will examine local taxation in isolation, because the remit contains no mention of the responsibilities of local government in Scotland. I suggest to the minister that the review should take into account local authorities' responsibilities so that it will know what global sums need to be raised and how that should be done. By leaving out such consideration, the minister is missing an opportunity to ensure that local government is doing its job properly now that we have a devolved Parliament that may have views on those responsibilities.
I was interested to hear the minister say that any appropriate model of taxation can be considered. What method of local taxation does he or his party propose? I notice that the statement mentions a reformed council tax. Given that we have heard the other partnership party's views on local income tax, I would be interested to hear the views of the minister's party. If, as I suspect, he is unable to provide those views today, I ask him to ensure that all submissions to the review are published on the web.
I refer the member to the Labour Party manifesto, which probably provides a greater insight on such matters than anything else. That keeps me from any dangerous incursions into areas into which I should not stray today.
In my statement, I referred to the critical role that the DWP plays in relation to council tax benefit; I mentioned the sum of £300 million. It is part of the review's remit to consider the impact on that of changes to local taxation.
I am not sure where Mr Monteith was heading with his point about whether it was centralisation for us to say from the centre what local government should do and how it should spend its money. I believe that local authorities should be accountable to local people through elections, not through the Executive. However, there are bodies that examine what local government does with its money and how it provides its services—organisations such as the Accounts Commission, Her Majesty's Inspectorate of Education and other inspectorate bodies do that on a regular basis. Therefore, I would argue that, as regards the accountability of local government, we have got things right with the electorate on the inspection side. The Executive's light touch ensures that, through inspection bodies, local authorities are closely examined in their work. With regard to other matters, Brian Monteith can rest assured that the Labour Party will make its views known to the review team in due course.
Will the minister provide an answer for a constituent of mine who is a pensioner and who came to an advice surgery? My constituent has a fixed income, which in relative terms has declined markedly in the past few years, and says that if there is progression in the taxation that they pay—which is a large proportion of their income—the only option is to move away from the house in which they have lived all their life. Will the minister assure me that the independent review will address that point about the ability to pay?
I welcome the minister's comment that local taxation will not be considered in isolation. Will he give an assurance that the review has the potential to consider increasing the proportion of money that is raised locally by local authorities and to consider the most efficient way of doing that?
The points that the member raises will clearly be part of the considerations. If not, the member's constituent may raise the point directly, or the member may raise it in another manner. I am sure that the review team will discuss the issue. The balance of funding will also be part of the review.
Presiding Officer, with your permission I will respond to Brian Monteith's question about announcing the membership of the review team. I intend to ensure that we get the right team for the job and I will announce its membership to the Parliament as soon as possible. However, prior to the formal announcement, I will discuss the names with the convener and the deputy convener of the Local Government and Transport Committee in order to gain a wider view of the proposals. I expect to report to the Parliament soon, but I must deal with a few matters before doing so.
I welcome the establishment of an independent review and the fact that it will consider systems that are based on taxation of the value of land, alongside other systems for collecting local government revenue. Does the minister agree that it is important that we do not use income as the sole measure of the ability to pay? Given the Executive's commitment to sustainable development, which includes social and environmental measures as well as economic ones, will the independent review consider social and environmental criteria alongside economic ones?
I am sure that it will do so, because I am sure that the member, if not others, will raise that matter with the review team. I recognise the member's point that the ability to pay is not simply based on income and his point about sustainable development, but those matters are for the review team. Given its remit, the team will be able to discuss those matters.
I am sure that the people of Scotland will welcome today's announcement because—I hope—it is the beginning of the end of the unfair Tory council tax. I am disappointed that, although we have waited 13 months for the announcement of a review, we do not have a timescale for it, or the membership of the review team. Will the minister give a commitment to aim for a maximum timescale of 12 months for the review team to report to the Executive? Will he give a commitment in considering the membership of the group to consider including representatives from the senior citizen community and the anti-poverty lobby in Scotland to ensure that those voices are heard?
The minister mentioned that the review's remit will include business rates. Will he confirm that the review will be able to recommend that business rates be at long last returned to local control? Will he also give a commitment that, instead of the list of priorities that he mentioned today, he will place ability to pay and fairness at the top of the list? Growth in the economy does not mean much if we have continuing inequality in our economy. We must have fairness and equality. Will the minister put them at the top of the list?
There is a misunderstanding about council tax benefit. The minister said that council tax benefit is paid to a quarter of households in Scotland, but will he confirm and clarify that, in fact, council tax benefit is paid to no households in Scotland and that the removal of council tax benefit will not affect a single household in Scotland? Therefore, it should not be used as an argument against a proper income-based local tax.
I will do my best to respond to all those points. If I miss one out I will get back to the member later.
First, I am not in favour of a dictatorial approach that says that the review must report within 12 months. I do not know how long it took to think up the poll tax—probably more than 12 months—and look what that left us with. I am more interested in getting the review right, because it has fundamental effects: yes, on the Scottish economy; yes, on individuals; and yes, on many of the pensioner communities in Scotland. I want the review team to get it right, rather than to set it false deadlines. All of civic Scotland—pensioner organisations, low-pay organisations, anti-poverty lobbies—will have an opportunity to put across their views on local taxation systems. That is what the review is about.
Business rates are an associated issue, and therefore will be part of the work that the review team will undertake. With regard to what is top of the list and what is not, I would argue that all the matters on the list are of equal importance. It is important that our economy is vibrant and earning and that people are in jobs so that they can pay taxes, in order that benefits can be paid to the people of Scotland who are not in as good a position as others. The economy is as important as the other aspects on the list of things to consider. The items are not listed as 1, 2, 3 and so on; they are bullet points, and I would argue that they are all relevant and important.
On the point that the member makes about the council tax benefit system, that is a matter of opinion—an opinion that I am sure that the member will put to the review team.
I welcome the review of the council tax, but I ask the minister to be mindful of the fact that we are still waiting to hear what is going to happen to council tax on second homes. I hope that we might have an answer to that before the review of council tax as a whole begins.
I share that hope. Tavish Scott and I are trying to expedite the matter as quickly as possible. As I have said to the Parliament in the past, there is a degree of technical work involved, which we need to resolve, but the intent is there and the work is continuing.
In 1999, the McIntosh commission recommended that there should be an independent review of local government finance, but the Executive at that time refused to set one up. The Parliament's Local Government Committee had to set up its own review. Since then, the council tax has risen by 50 per cent. Is that the reason why the minister now thinks that it is an appropriate time for a review of local government finance? Given the delays in the Executive getting its act together, it is unacceptable that the minister refuses to set a timescale. If he will not give a timescale for that review today, will he give an undertaking to the chamber that he will announce a timescale for reporting when he announces the membership of the review group?
First of all, the Executive said that the review would be a thorough examination of Scotland's local taxation system. It has implications well beyond local government; it has implications for working families and businesses in Scotland and it has implications for council services. I therefore repeat the point that I made earlier: this is about getting the review right, as opposed to the speed of response. That will be a matter for the review team to discuss and it will want to indicate the timescale of this undertaking to the Parliament and to others. It is a very significant undertaking. We have agreed, through the partnership, that this is the best way forward, in that it will get all forms of local taxation, and the effects that they have on Scotland, out on the table. That is important, and it is important to take time over that to ensure that we get it right.
I welcome the minister's statement that the review will be required to take into account the impact on the Scottish economy of any change in the taxation system. Does the minister agree that the policies proposed by some parties would have a severe impact on middle-earning people, such as academics, which in turn would have a potential impact on the opportunity for the Scottish economy to prosper? To what degree does the minister believe that the advocacy of a local income tax contributed to the abject failure of the Scottish National Party to overtake Labour in the European elections?
I will not go there, with due respect. Why intrude on pain?
It is critical that, as part of the review, we understand the implications of what we do in future, because whatever we do to local taxation will mean a reduction in tax for one person and an increase for another. We need to understand people's behaviour during that process and the implications of our actions.
I want to ensure that every model of local taxation—including reformed council tax and local income tax and whether it should be collected locally or nationally—is tested to destruction. Before we take a step, we need to be sure that we are not jumping from the frying pan into the fire. We have seen examples of that happening, and I want to ensure that the review does not do that.
I welcome the minister's statement and the setting up of the review. Local government has been calling for one for as long as I can remember—which is longer than members might think. The Liberal Democrats have consistently opposed the council tax as unfair—because it hits hardest those who are on the lowest incomes—and supported the case for a local income tax and we will strongly promote that case to the review. Does the minister agree that it is incumbent on other parties in the Parliament to present their views—whether to retain the council tax, return to the poll tax as the Conservatives seem to want to suggest, or to have some other form of taxation—to the review team as strongly as possible so that it can come up with a genuine analysis of the strengths and weaknesses of all cases, which I believe will come out in favour of a local income tax?
The questions are not over yet, but—dare I say it—there has been little criticism of the core areas that the review team will examine. That suggests that, when all the different proposals for local taxation are tested to destruction against those criteria, we will at least have a recommendation on the direction of local taxation in Scotland that comes out of the review team's consultation and understanding and is based on study and reflection. That is the sole purpose of the review, which is about action and listening to civic Scotland on local taxation. However, we must ensure that we get it right and understand the implications of any future local taxation measures.
I ask that the review body be asked to make an early estimate of the costs of introducing an income tax to replace the council tax, because we have had a variety of estimates, from Fergus Ewing's estimate of less than 4p in the pound to the estimate of between 7p and 8p in the pound that most professional people have given. A rational debate would be to ask what such a tax will cost and how it might work, and that needs to come not only before the end of the process, but as near its beginning as possible.
The minister must ask how the deprivation redistribution that takes place under the present arrangements is to be continued under whatever new arrangements are put in place. To maintain services, areas such as Glasgow, West Dunbartonshire and Fife deserve to get some redistribution above what is collected from them. That is a crucial question.
My final question for ministers is how the taper in any benefit system is to work. Those who are most disadvantaged under the present system are poor people on small occupational pensions. Whether we need to change the whole system or change how rebate systems work is a crucial dimension in the process, because those on small occupational pensions end up becoming liable for every bill, including council tax bills. I would like that to be taken into account in the review.
My job is to listen to the review team's findings, which will come after long evidence taking and consideration of all the matters that members have raised today and will raise in future.
Local government distribution is a matter with which I toil daily. Even after 37 distribution reviews since local government reorganisation, the variation for 16 or more councils has been limited to 0.1 per cent of aggregate external finance, which is the money and resources that go to local authorities. Over the years, we have tried to define, refine and closely examine issues such as deprivation and rural sparsity, and those issues continue to be discussed. The review's focus is on revenue—the income stream to local authorities—and its primary function is to consider local income tax, council tax models, land value taxation models and how the income stream works for local government, but as the review team's outline remit says, other matters will be covered.
My regrets go to those members whose names are still on my screen, but we must now go to the next item of business.