Local Authority budgets are only hard to balance because Holyrood holds the power

City of Edinburgh Council has issued a dire warning of a budget debt and deficit spiral with a projected £61 million deficit in the coming year and £223 million over the next decade that will take their total debt load to almost £3 billion.

The budget crisis has been exacerbated by Holyrood control over Council financing where councils across Scotland have been bullied into accepting Council Tax freezes or see funding from Holyrood handed over if and only if it is ringfenced to pay for projects announced by central Government.

Scotland’s local government finances are some of the most centralised in democratic Europe and in many countries the idea of central government manipulating local finances in this way is explicitly outlawed in national constitutions.

Edinburgh Council has called for an end to such tactics and for ring-fencing to be removed from funding or the promises of funding to preserve local autonomy.

There is more that could be done though. Local government finances in Scotland are far too heavily leveraged on the Council Tax which is badly regressive, badly broken and is universally accepted as needing reform. However, the Scottish Parliament outright refuses even the most minor reforms to the tax (see Craig’s newsletter article tomorrow for more on that subject).

Common Weal believes that the Council Tax should be scrapped and replaced with a Property Tax based on a percentage of the actual value of a house. When we initially proposed that tax, we modelled it as a single, national rate (of 0.63%) set at a level that would match the revenue then raised from Council Tax but we were clear that Local Government should be able to set that tax however they like (as is the case for similar taxes in Europe) and that includes the possibility of surcharges for additional homes, vacant properties or holiday lets. Edinburgh is also home to some of the most expensive properties in Scotland and so not only would that illustrative national rate stand bring in an increased proportion of revenue to Edinburgh, they should have the power to increase that rate further for those who can clearly afford it.

We also proposed extending that tax to cover land as well as residential housing. Edinburgh may not be a place regarded for its vast rural fields but our modelling suggests that even there, our Land Tax would bring an additional £2.2 million per year to the Authority’s coffers.

There are non-tax ways of improving local budgets too. Edinburgh already leads the way over other Local Authorities by way of preserving its local public bus service (Lothian Buses generated £3.2 million in dividends for the Council in 2023) and this principle could be extended by increasing the provision of directly owned social housing, care facilities or by launching a local Public Energy Company. Unlike Holyrood, Local Authorities have near unlimited borrowing powers when it is used for “prudential” purposes - that is, the borrowing is expected to generate a return in revenue at least large enough to pay back the loan.

The key driver in this though remains tax. While some positive steps towards local authority autonomy have been taken in areas like the Tourist Levy and the potential Cruise Ship Levy (though perhaps encouraging even more tourism in Edinburgh is not as sustainable as some would like), the process of delivering powers to local government has been far too slow and subject to the whims of the day. Councils and Holyrood should take inspiration from our paper on how to restore a European level of municipal democracy to Scotland and should extend its principle of local taxation to Councils too - Councils should have the power to request new tax powers from Holyrood and Holyrood should apply a principle of presumed consent and legislate to grant those powers as soon as they can.

It is well within Scotland’s ability to have a strong local government with sustainable finances. The problem with Scotland is that the people who currently have the power to create this system also have a vested interest in seeing that local councils are as vulnerable to being centrally controlled as possible.