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Taxing issues

  • Brian Taylor
  • 16 Apr 07, 07:12 AM

Bet the Tories wish they鈥檇 never scrapped the rates. Ever since that decision, driven by a particularly hideous property revaluation, local taxation has remained a highly contentious issue.

We had the Poll Tax (does anyone still remember that its Sunday name was the Community Charge?) Then the Council Tax, with properties ranked in bands.

Now two parties in this election are proposing to scrap that and bring in a Local Income Tax. The other two majors offer reforms to the council tax.

The issue again dominated a rather sparky debate on 成人快手 Scotland on Sunday, with the four major leaders taking part.

For fun, let鈥檚 pick a few holes in all the options. Broadly, every tax strikes a balance between equity and efficiency. Property taxes are, generally, efficient: it鈥檚 pretty hard to hide your house. Snag is - are they fair?

Well, mostly, wealthy folk live in big posh houses - but there isn鈥檛 a straight correlation.

Neither the Tories nor Labour are proclaiming the council tax as wonderful. In the debate, Annabel Goldie said the system had 鈥渨arts鈥. Invited to describe the council tax as fair, Jack McConnell called it 鈥渟table鈥.

The Tories are offering to halve council tax for pensioners over 65. Hole-picking time. By definition, such universality of approach benefits those who have cash as well as those who don鈥檛. Also, it does nothing for those below the age of 65.

Labour wants two extra bands at the bottom and top of the property ladder.
But Jack McConnell today was careful to stress that these changes would have limited scope.

My guess is that鈥檚 because any bigger change would demand a revaluation 鈥 and Labour is determined to avoid that at all costs.

Instead, Mr McConnell stresses the scheme to halve and eventually abolish water charges for pensioners over 65. That probably means uncoupling water costs still further from the local taxation to which they are nominally linked.

(That鈥檚 to avoid any risk of Whitehall clawing back the cash in benefit withdrawal.)

Then look at Local Income Tax. It鈥檚 already been pointed out that those who get their money from share dividends or savings will pay nothing locally under LIT.

Now there鈥檚 controversy over Council Tax Benefits. Would they be scrapped in Scotland under LIT - just as attendance allowance vanished when free personal care was brought in?

No, say the proponents, the SNP and the LibDems. Whitehall wouldn鈥檛 be so wicked or politically inept as to punish Scotland for a devolved decision.

But consider this. Its advocates insist that LIT is a much fairer system. Some 500,000 pensioners, for example, would pay nothing.

If it is so equitable, if it genuinely matches taxation to ability to pay, then why should the State continue to pay benefits?

Further, Council Tax benefit is worth some 拢381m annually in Scotland, paid to defray the imposition upon individuals.

The advocates of LIT want the Treasury to continue to pay this sum - but directly to the executive.

On what basis would that sum be calculated in future? Let us assume that the Treasury agreed to pay 拢381m in year one, to placate Scotland. What do they pay in 10 or 20 years when the Council Tax upon which the benefit was based has long been abolished - and there is no Barnett consequential to assist the calculation?

I鈥檓 very far from saying it鈥檚 impossible. Everything鈥檚 possible, with good political will. Further, there are very few people willing to act as cheerleaders for the Council Tax.

However, this is far from a simple choice. Isn鈥檛 electoral politics fun?

Comments   Post your comment

  • 1.
  • At 03:16 PM on 16 Apr 2007,
  • Rebecca wrote:

Everything is possible, Brian, you're quite right.

I wouldn't have said that the biggest problem for the Local Income Tax was whether it was possible to do it. I would have said the problem was whether it was a good tax for people.

I understand that the Lib Dems said that they didn't especially care if a nurse and a firemen had to pay more tax? And the SNP seem to be going along with this too. My family makes around as much as they would.

My question, which perhaps you or your readers could answer, is why do the Lib Dems and the SNP think my family should pay more?

It's genuinely strange.

  • 2.
  • At 04:36 PM on 16 Apr 2007,
  • Peter, Fife wrote:

What many politicians in this debate fail to take into account is that there is no system of local taxation that can be equitable to all the citizens of Scotland or for that matter England, Wales and Northern Ireland.

Pensioner reductions at 65 do not take account of those whose employment retrial age is less than 65 and of those under 65鈥檚 who were forced into becoming pensions early because of ageism in the employment market; alternatively keeping the Council Tax with one or two cosmetic tweaks to give the impression of a listing Government may well be too little too late.

The plight of a single pensioner who on their own or with a partner were prudent and purchased a substantial property which has rocketed in price and as such under the current Council Tax legislation is faced with a substantial disproportionate draw on their funds; especially compared to the family of four living next door with four incomes.

This is the very problem that Margaret Thatcher attempted to address; not only does the second family have four incomes they use at the very least four times the council services that the single pensioner does.

The 鈥楶oll Tax鈥 or Community Charge was the fairest concept, you pay for council services pro rata, on the assumption that you used those very varied council services; this system was never going to be accepted, it was the wrong time, by the wrong Prime Minister and was exercised maliciously in what was established by Mrs Thatcher as the UK Testing Grounds, Scotland.

With the 鈥楶oll Tax鈥 a family of four over the age of eighteen were charged a multiple rate which the householder / owner had to collect / pay; in effect four separate Community Charges; the pensioner next door had only a single Community Charge to pay.

However today when we are offered a version of the 鈥楶oll Tax鈥 by at least two political parties, it is not the householder or owner that has to be accountable for all four separate payments, but the income of each of the four and the pensioner which will be charged at roughly 3p in the pound, it is equally noticeable that all hell has not broken loose; could that be because nobody has called it a 鈥楶oll Tax鈥?
We must not overlook that further attempt of a 鈥楶oll Tax鈥 one which is being considered in regions of England, that of charging pro rata for waste collection; if this is approved in England it may well be on our doorsteps shortly, this 鈥楶oll Tax鈥 will of course be delivered in a 鈥榞reen鈥 wrapper.

Is this down to personalities, salesmanship or a realisation that a fairer system could be on offer, the 鈥楶oll Tax鈥 was not all bad but was poorly packaged and delivered by discredited and despised politicians; what will be the perceptions today鈥檚 voters will formulate of those bearing 鈥榞ifts鈥?

  • 3.
  • At 05:31 PM on 16 Apr 2007,
  • James Stevenson wrote:

Brian writes, "Mr McConnell stresses the scheme to halve and eventually abolish water charges for pensioners over 65."

But as usual this is highly discriminatory as many rural dwellors, and a higher proportion of older people, live in houses not connected to mains sewerage and hence not paying the corresponding rates. A smaller but still significant number have private water supplies and therefore pay no water charges at all.

This proposal once again illustrates Labour's total central belt bias with little realisation of life in the country.

  • 4.
  • At 06:56 PM on 16 Apr 2007,
  • phil wrote:

Brian, comments that "electoral politics is fun" and one has to agree that this is the case as each of the parties chase the tail of the others policy proposals. Where i would differ with Brian is that the fact that Treasury may or not be inclined to "placate Scotland", in ten or twenty years time by continuing some form of tax benefit, as being relevant. By 2027 I forecast that the Treasury will have no input into Scotland,which will have followed various European countries in declaring independance from their nieghbours
Phil

  • 5.
  • At 12:52 AM on 17 Apr 2007,
  • Harry Shanks wrote:

It has always been a fact that a tiny minority of people can afford to hire smart accountants or to keep their savings in offshore bank accounts in order to minimise their Income Tax. However this is not used
as an argument to suggest that the Income Tax system is somehow corrupt and unfair. Why then is this red herring of "income from shares and dividends" suddenly dished up when a Local Income Tax is proposed? Sounds fishy to me!

A Local Income Tax is by far the fairest way to finance local government. If this proposal goes ahead it probably cannot come into force until 2009. In the intervening period there will be an opportunity to examine these anomalies and attempt to deal with them.

Incidentally, the answer to the "red herring" question above is that the Council Tax system is so inherently unfair that it cannot be defended - even by McConnell! Therefore the sensible, fairer alternatives put forward by the SNP and the Lib Dems together with most of the minor parties, must be rubbished at all costs to create a smokescreen.

Highly appropriate that a herring and smoke should be brought together by Jittery Jack who is hopefully going to be done up like a KIPPER on May 3rd!

  • 6.
  • At 02:25 AM on 17 Apr 2007,
  • niall shaw wrote:

The correlation of wealthy people living in high-value houses tends to hide the fact that it is the land value of the property which has the largest economic significance, rather than the building value. In other words, it's not (in this case) so much what you do with it that counts. That's your business. But inflationary boom/bust cycles (and mortage misery) are the result of profiteering on community-created land values - the biggest loophole in existing taxation.

Basing local taxation around the land (with no get-out for unused properties) rather than the building value would not necessarily require significant alterations in funding arrangements from Westminster, even if we don't make that question irrelevant; and it would help focus economic activity where it's needed - on both urban and rural lands that are currently pushed to the economic margins.

Those who need to learn more about this can read about Lloyd George and Asquith. Unfortunately recent generations of Liberals have forgotten, so no help there.

  • 7.
  • At 10:03 AM on 17 Apr 2007,
  • Fergus wrote:

A local Income tax will be a complete nightmare! Why hasn't the penny dropped yet?

The richest people in the country would pay nothing for their local services (i.e. people whose income comes from wealth gains).

Families with kids staying at home and working ebfore they buy their own homes will be massively worse off.

And if (like I do) you live in a flat with your partner (Band B) and earn OK wages (I am on 拢24,000, my partner is on 拢20,000) we will be worse off.

Why on earth isn't this being pointed out?

  • 8.
  • At 01:56 PM on 17 Apr 2007,
  • Barry wrote:

Attendance Allowance is still paid to over - 65's living at home with care needs. It is only after the personal has been in Hospital/permanent/respite care that they loose their entitlement to the benefit.

I鈥檓 confused by Phil's statement about Scotland following various European countries into independence from its neighbours; I personally cannot name that many unless you count the Balkan states.

Many of the Balkan states that have split from neighbours have either done it through violence and bloodshed or revolution (neither of which I would like to think are an option here).

More importantly in many of these cases the nations gaining independence are fighting against the rule of a nation whose doctrine has been enforced on them. (Scotland entered into the union with Britain voluntarily, yes, yes I know there was much bribery and corruption but in the end it was part of a democratic process.)

What I am essentially saying here is that the countries in question when the gain independence are gaining recognition of their existence as an independent nation rather than simply being a province of the neighbour. To claim Scotland is in any way similar to these countries is an insult to the achievements in these countries gaining independence for themselves.

  • 9.
  • At 12:02 PM on 18 Apr 2007,
  • Alistair wrote:

Why does everyone think LIT is fairer than Council Tax?

Those fortunate enough to live off trust funds will pay nothing. Accountants will help the Self Employed reduce their 'wage' income to avoid paying full tax. Those that can't be bothered getting a job will pay nothing and have even less incentive to get a job.

Local Services will be funded by those working in Scotland and therefore be subject to fluctuations on employment levels.

The people with decent incomes but still have bills to pay each month will be hit hardest.


The SSP were all for "can't pay won't pay" for a tax they didn't like? If LIT is taken from your salary, how could you refuse to pay?

Will employers not be asked to provide more info to the IR for scottish emplyees, giving an incentive to take jobs away from scotland?

How quickly will the 3p tax rise to 4p, 5p, 6p?


If pensioners are the main group of people struggling to pay council tax then increase the state pension by a reasonable amount to help them rather than move an tax that some people currently find unfair to another tax that another group of people will find just as unfair.


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