The Key Ideas

#5 Transition to a more decentralised local tax system where 50% comes from a Holyrood block grant and 50% is controlled locally

The transition to a decentralised local tax system would work as follows. First, income tax at the national level would be cut, but a local income tax would be introduced at exactly the rate by which the national level was cut. People would pay precisely the same income tax but now a proportion of it would be distributed by regional councils. Each regional council's grant from central government would then be cut by exactly the same amount as the value of the tax being transferred so there would be no net change in budgets. Council Tax would then be replaced with a property value tax, again on a like for like basis so the total tax take is similar (although because a property tax is more progressive it would be spread more equitably). The existing taxes on non residential businesses would continue, other than when they are taken account of by the additional land value tax (discussed in more detail below). Aside from this additional tax, the decentralisation process in itself would not substantially change budgets or the balance between income and asset taxes.

Clearly there are some councils which are better able to raise tax due to the income profile of their population, just as is the case now. One of the reasons for retaining 50 per cent of the regional councils' funding from a block grant from Holyrood is to continue the use of equalisation methods which ensure that both ability to raise income and social need are taken into account in order that all regional councils have a level playing field.