Blog: Could new local taxation pave the way for a stable housing market?



By James Battye at Shelter Scotland

On Friday the Scottish Government announced the remit and membership of the Commission on Local Tax Reform.

The Council Tax in its current form is widely accepted to be an out of date and unfair tax, and the Scottish Government’s intention to consider alternative forms of local taxation is an important step in the right direction.

But what should a new system of local taxation look like? Should incomes be taxed locally? Or property? Or a mixture of both? And with house prices across Scotland at record levels – could innovative reforms to local taxation temper a housing market which is putting stable, good quality affordable housing increasingly out of reach for many?

As the newly-established Scottish Property Tax Reform group states: ‘a well-designed system of property taxation can and should play an important role in public finance, the economy and a fair society’. If the end result of a reformed system of local taxation is a more stable housing market – less susceptible to the boom and bust cycles we’ve become all too accustomed to – then the risk that housing costs spiral out of control, making housing in Scotland increasingly unaffordable, could be avoided.

The Commission on Local Tax Reform should give serious consideration to a form of property taxation playing a role as part of a new system of local taxation. For example, an annual tax on the capital value of properties across Scotland could act to stabilise house prices and, in some cases, encourage more efficient use of Scotland’s housing stock. Of course there is also a need to look at the Council Tax Reduction scheme (formerly Council Tax Benefit) too, ensuring that those with low incomes but high property prices are not unable to pay any reformed local tax.

How any such changes would affect private renters should also be considered. Should private tenants be expected to pay a tax based on the value of their landlord’s property? Given the extra pressure that Council Tax liability places on private renters’ household budgets there also needs to be space to explore how affordability pressures on the growing number of private renters might be eased.

We look forward to exploring these questions more fully in the months to come and hope that Scotland can find a long-lasting and fair replacement for the Council Tax, which introduces some badly-needed stability to Scotland’s housing market.

Shelter Scotland is a member of Scottish Property Tax Reform.