Scotland: pressure grows to allow local levies

7 Sep 15

Scottish Ministers are facing mounting pressure to reverse previous opposition, and allow councils to levy supplementary taxes, such as charges on hotel stays or workplace parking spaces.

A string of influential groups have told the joint Scottish Government/Convention of Scottish Local Authorities (Cosla) commission on replacing the council tax that authorities should be able to impose local charges over and above any Scotland-wide tax system. Advocates include Cosla itself, CIPFA, the Scottish Green Party and the Centre for Scottish Public Policy (CSPP).

While the commission’s conclusions, due before next May’s Holyrood elections, are not binding on any party, it is clear that a head of steam is building up behind a right to charge local levies.

“I think the commission gave the Scottish Government a bit of cover by saying there should be discussion,” Prof Richard Kerley of Queen Margaret University, who chairs the CSPP, told Public Finance. “What I see now is everybody acting like they were standing at the edge of a swimming pool, holding each other’s hands and thinking, if we all jump together we will be okay.”

The issue last came to a head in December 2011, when a proposal from the City of Edinburgh Council to raise about £10m a year through a £1 a night levy on hotel stays was blocked by the Scottish Government, chiefly on the ground that it lay outside existing law.

Tourism Minister Fergus Ewing also made clear then that the governing Scottish National Party opposed the idea in principle, and had no plans for enabling legislation. 

“There is a high risk that a visitor levy could damage the industry’s competitiveness,” he told MSPs, pointing out that other EU countries had cut VAT on accommodation to give their visitor industries a competitive edge.

But the CSPP submission says that hotel charges in Edinburgh can vary by 400-500% between peak and off-peak periods. “Are the trade really saying that somebody paying £154 a night for a hotel room during the Festival is going to cavil and go stay in Dundee instead for an extra 75p?” Kerley asked. 

He said there was growing public discussion about the benefits of increasing both local accountability and the range of taxes to fund it, which could give the SNP an opportunity to counter perceptions of a trend towards centralisation of power. Though the issue lies beyond the commission’s remit, business rates could also be left to individual councils to set, Kerley suggested.

A tourist tax, he said, could be applied only in certain parts of a council area, if the authority so chose, and the proceeds hypothecated to specific ends, such as servicing the tourism industry.

The common criticism of such charges is that they are often unavailable to the areas with greatest need for council spending. “That’s the reason why you have an equalisation system,” Kerley said. “Where we are now, where most of the budget is [central] government support, you get less scope to allow more differentiated levels of support between and within local authorities.”

CIPFA’s submission to the commission, whose members includes CIPFA Scotland head Don Peebles, says: “We consider that the conditions now exist to enable local democracy to be further enhanced by broadening the range of local discretionary tax powers available to local authorities.”

Cosla similarly says: “Individual local authorities should have the discretion to raise additional income by levying a tax, in addition to council tax and non-domestic rates, on residents, occupants, property owners or visitors in the local authority or within a discrete area of the local authority.”

In a recent newspaper article, Scottish Green MSP Alison Johnstone, who represents Lothian, said a modest visitor levy in Edinburgh could greatly boost support for the city’s festivals and venues: “Such charges happen around the world. The idea that £1 would put anyone off is simply daft.”

But business leaders are likely to be more cautious. In its submission to the commission, the Federation of Small Businesses says: “The administration of any alternative [to the present fiscal regime] should not place new burdens on Scotland’s employers.”

  • Keith Aitken
    Keith Aitken

    covers Scottish affairs for Public Finance from Edinburgh. He was formerly economics editor and chief leader writer on The Scotsman and now has a busy freelance career as a writer, broadcaster and event chair.

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