AN OVERHAUL of council tax and the groundwork for a land value tax should be laid out in this week’s Scottish Government Budget, according to a non-partisan think tank.

Future Economy said Scotland’s “exceptionally challenging" fiscal outlook had worsened because of the UK Government’s Autumn Statement.

The think tank is now recommending five key revenue-raising measures to address the resulting fiscal gap and avoid cuts to public services.

Co-director Miriam Brett said the Scottish Government had to introduce “bold and ambitious” changes to raise revenue.

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“The Scottish Government has recently utilised devolved tax powers, most notably through income tax changes. However, Scotland’s fiscal outlook is exceptionally challenging and it has been made worse by the UK Government’s Autumn Statement,” she said.

First Minister Humza Yousaf has pledged a freeze on council tax but Brett said this would disproportionately benefit wealthier people.

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“We need a long overdue overhaul of council tax and the introduction of a progressive property tax based on up-to-date property values, with a higher surcharge for second homes,” she said.

“Necessary steps should also be taken during this parliamentary term to lay the groundwork for implementing a Land Value Tax.”

The think tank also wants the Scottish Government to look at options for introducing a local wealth tax that would be levied on households with more than £1 million of wealth.

In addition, it says a Frequent Flyer Tax should be introduced as this can curb emissions and address carbon inequality.

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“Our research shows that the richest households consume 11 times more carbon from aviation than the poorest households,” said Brett.

Lastly, Future Economy wants the rate of Land and Buildings Transaction Tax on non-residential transactions to be equalised with that paid on residential transactions, and for a surcharge to be introduced on land holdings over a certain scale threshold – operating on a similar principle to the Additional Dwelling Supplement for residential transactions.

Deputy First Minister and Finance Secretary Shona Robison said her Budget will focus on protecting people and public services amid a “profoundly challenging” financial situation.

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“The Autumn Statement was devastating for Scottish finances,” she said. “The Institute for Fiscal Studies has acknowledged that it will lead to planned real-terms cuts in public service spending. Scotland is facing a 9.8% cut to our capital budget for infrastructure between this year and 2027-28.”

Robison pointed out that the £10.8m additional health consequentials the Scottish Government has received from the Autumn Statement for next year was only enough to run NHS Scotland for just five hours, while funding for justice, housing and communities, net zero, energy and environment are all being cut in real terms.

“All this comes on top of more than a decade of UK Government underinvestment that has left our public services with very little resilience,” said Robison, adding that she refused to follow UK Government spending decisions.

“Indeed, we are doing all we can to mitigate them,” she said. “We are proud that Scotland has a social contract which ensures people are protected by a safety net should they fall on hard times. And this contract underpins this Budget, with targeted funding to protect people and public services.

“We are unashamedly targeting resources at those most in need to support them through the cost of living crisis. We are providing funding to deliver the services that people rely on most, along with a 10-year programme of public service reform. And we are using all the powers we have to create a thriving economy while providing funding to achieve our ambitious net-zero targets.”

New modelling by the National Institute of Economic and Social Research suggests that compared to EU membership, the UK economy is 2.5% smaller in 2023, and it expects this to increase over time to 5.7% by 2035.

This equates to around £69 billion in output and £28bn in public revenues lost as a consequence of Brexit in the UK in 2023.