In context: Council tax hikes

What’s happening?

Scottish councils are due to raise council tax rates as the freeze put in place by former first minister Humza Yousaf comes to an end in April.

Freezes or caps on rates in recent years have insulated residents against big changes.

The last hike was in 2023-24, when councils increased rates by five per cent.

By how much is tax going up?

At the time of writing, Scottish councils had announced hikes of between seven and 15.6 per cent, all significantly higher than the latest inflation rate of three per cent.

Why is the tax increasing?

In short, councils are strapped for cash.

And although Scottish Government grants provide the largest chunk of funding for local authorities, amounting to 66 per cent, council tax is their second highest source of income, accounting for 19 per cent.

But weren’t they given more money in the budget?

Yes. The Scottish budget, passed last month, allocated an additional £1bn to councils, bringing the total government funding to £15bn. Ministers hoped this extra funding would prevent big tax rises. But councils argued otherwise.

Local authorities welcomed the extra money, yet said higher rates were still needed to help plug the gap caused by years of restricted funding from the government. Before the budget was announced, councils said they were facing a combined funding gap of almost £400m, which could increase to £780m by 2026-27.

Financial pressures also ranked as the top concern for council leaders in Holyrood’s Local Authorities Guide.

Jim Logue, North Lanarkshire Council leader, said appropriate funding had been “the biggest ask” for “many years” and called for “multi-year settlements” to allow the council to plan clearly and “remove as much ring-fencing as possible”.

First Minister John Swinney argued the Scottish Government had “done its bit” with the extra £1bn in funding and instead pointed to the UK Government’s recent hike in employer National Insurance contributions as one of the main causes for the rise in council tax.

What has the reaction been?

Citizens Advice Scotland (CAS) warned the new rates will impact those struggling financially the most. Myles Fitt, CAS financial health spokesman, said: “Council tax debt is the single biggest debt the Scottish Citizens Advice Bureau network deals with each year and our fear is these rises could further increase numbers of people falling into debt or falling further into debt.”

Meanwhile, the tax hike has also led to a significant growth in the call for a council tax reform.

But hasn’t it been reformed before?

Yes, kind of. The SNP has pledged to reform council tax since 2007. After a failed attempt to replace it with a “local income tax”, the government introduced the first change in 2017. Following the end to a nine-year long council tax freeze, the Scottish Government increased rates in the highest bands.

The changes impacted bands E to H, with rates increasing in a range from 7.5 per cent to 22.5 per cent. It meant those living in an average band E household would pay around £2 per week more, and those in the highest band around £10 a week more. The new rates formed part of the SNP’s commitment to a “tax system that is proportionate to people’s ability to pay”.

And two years ago, the government and Cosla attempted to increase the rates again. They launched a consultation proposing similar changes to those made in 2017. However, the plans were rejected by 95 per cent of respondents and the government decided not to push forward with the proposals.

Last month, the Institute of Fisal Studies published a report outlining what reform should look like and what the impacts of it would be. The thinktank said the 2017  reform failed to address “the most obvious problem with the tax”: property revaluation.

Current rates are based on house valuations from 1991, despite the value of properties changing since then. The IFS said this was “unfair” and it estimated that more than half of all Scottish homes were in the wrong band.

The report urged the government to follow the Welsh Government’s model. Last year, the Senedd passed the Local Government Finance (Wales) Bill which will see an initial revaluation of council tax in April 2028, with subsequent revaluations to happen every five years.

What’s next?

Last month the Scottish Government said a consultation and an independent analysis on how to make the system “fairer” would be launched later in the year.

However, as any reform would require legislation, it is unlikely to happen before next year’s Scottish Parliament elections.