Hansard

I reassure the Rev Alistair Morrison that his voice was heard loud and clear, despite the fact that the microphone was not working too well.

We made a commitment in the partnership agreement to set up an independent review of local government finance. I am happy today to announce the remit of that independent review and I will confirm the membership of the review team to the Parliament in due course.

The support that we give to local government demonstrates that we are committed to the delivery of high-quality public services. We know that the people of Scotland deserve and expect services that are of the highest possible quality. They deserve and expect effective local services that are locally delivered by democratically accountable local councils. We have made a commitment to reform and modernisation and we have secured significant improvements in public service delivery through distributing record levels of resources to local government.

However, that is only part of the story. Around a fifth of local authority net revenue comes directly to local authorities from council tax payers. We all strive for a system of local tax that is as fair and reliable and as predictable and stable as possible and we need to ensure that we strike the right balance for the taxpayer and for local authorities.

It is fair to say that there are concerns about the current council tax system. Now is an appropriate time for a review. The review matters to the people who pay council tax, to local authorities and to the many services upon which we all depend. Local taxation pays for schools, for services for the elderly and the most vulnerable and for services such as the maintenance of roads, street lighting and refuse collection. Let us face facts: no one likes paying tax and any form of taxation has its critics. However, we must also face the fact that taxation is required to fund the services on which we, our families and our communities rely.

We will listen to what the review has to say and we will act. The review has a challenging remit. All the taxation alternatives are up for consideration. Each of the parties in the Parliament has a different position, as do members of the local government and business communities. The review will examine each of these alternatives: the council tax in its current form; a reformed council tax; a local income tax with a rate that is set locally; a local income tax with a rate that is set nationally; a land value tax; and options for local business taxation.

The review will be independent of the Executive. It will be free to consider the proposals that are put to it by the various parties that are represented in the Parliament and by other interested groups. It will include any model of local taxation that it considers appropriate. Each alternative will be examined carefully and rigorously; its strengths and weaknesses will be identified and the practicalities and wider economic impact of any changes will be considered in depth.

Now is the time for detail and hard work. I have given the independent review the task of considering each proposed tax against a defined set of criteria. It will consider the effect of the proposed tax on economic growth, because a successful economy is key to Scotland's future prosperity and first-class public services are possible only in a successful economy. It is vital that the wider economic impact of any form of taxation is fully considered. We must not forget that high taxes, whether they are levied nationally or locally, have an impact on the economy, on business and, of course, on hard-working families.

The review will consider whether the proposed tax takes account of ability to pay and is fair. We need to be sure that the amount of tax that individuals pay is reasonable given their circumstances.

The review will also consider how easy the tax would be to collect, whether income could effectively be predicted and whether the system would be stable. It will consider what the shift to a new system would involve. It is vital that we get those matters right for local authorities, which require stable funding if they are to provide schools, social care and roads, to take cognisance of changing needs and to plan effectively for the future of their communities.

The review will consider the collection cost of the proposed tax and who would collect it. The administration of council tax, including council tax benefit, has an obvious cost for local authorities, but what would be the cost of administering the alternatives? For example, the Inland Revenue and businesses that have Scottish employees might incur additional costs.

The review will consider the impact of any proposed change on the relationship between the tax and the benefits system. Under the current council tax system around a quarter of households receive council tax benefit at a cost of about £300 million to the Department for Work and Pensions. What would happen to that under a new system?

The review will also consider the impact of any proposed change on the relative contributions of local and national taxation to paying for local services. As I said, council tax payers currently contribute about a fifth of net revenue. Would that change under any reformed system?

The independent review will test each proposed tax. It will identify the strengths and weaknesses of each and it will make recommendations. We will examine its conclusions carefully.

As we all know, local government finance is complex. However, we must remember that the decisions that we take have major implications for the individuals, families and communities who receive and pay for council services. Any taxation system—local or national—will have implications for our economy and our businesses.

We know that it is not possible to look at local taxation in isolation—nor would we want to. Any change to local taxation will have wider implications for local government finance. I have therefore asked the independent review group to look at the implications for the rest of the distribution system; business rates; the mechanism for distributing grant between authorities; and the relationship of local taxation to domestic water and sewerage charges. Some issues are reserved to Westminster—council tax benefit for one.

Many will be keen to engage with the review and I am keen for them to do so. Only then will we have the full, thorough and independent review that we want. The remit of the independent review group is available from the Scottish Parliament information centre staff at the back of the chamber and it will be circulated to all local authorities today. It is also available on the Scottish Executive website.

The independent review of local government finance will have implications for every single person and business in Scotland. We all deserve a system of taxation that is as fair as we can make it, and we all deserve local authority services of the highest possible quality. The review will be comprehensive and it will represent the most serious consideration of local taxation in Scotland. I challenge this Parliament and the people of Scotland to engage with the review.