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Local Government
Chronicle - 18 March 2008
About a million years ago – well, 19 to be precise – a British Prime Minister known for firm opinions and a predilection for “getting things done” decided that Scotland would be the test-bed for a radical change in local taxation. The poll tax was born. The rest, as they say, is history.
Last month the Scottish Executive/Government’s Finance Secretary, John Swinney, produced an unassuming bundle of papers stapled together and entirely innocent of the glitzy packaging which attends the birth of most government documents (try Ed Balls’ The Children’s Plan Toolkit package as a monument to profligacy) and pronounced the next revolution in local taxation. The plan for a Scottish Local Income Tax was born.
Could Scotland now be the test-bed again for a nation-wide revolution in local finance?
Of course, local income tax means different things to different people. It means different things to the coalition of Scottish Nationalists and Liberal Democrats who wish to see it introduced in Scotland. The Scot Nats are proposing a national 3p supplementary income tax across the board. They have left open the issue of whether local councils would receive the amounts raised in their areas or whether there would be a formula distribution. The Lib-Dems ague for locally determined rates. The Government, which will need Liberal-Democrat votes to push the changes through the Edinburgh parliament, is talking at most of allowing councils a small margin of discretion (perhaps 0.5 per cent) around the central rate.
Swinney has produced a long list of all the winners. He argues that only households with earnings (unearned income does not count) of more than £70,000 a year would be worse off. Of course it all depends on the sample you take. PricewaterhouseCoopers (PwC) has said that hundreds of thousands of middle-income earners would end up in the red: for example, single people in average Band D homes earning £35K plus, Band G households earning £53K and couples in Band D homes with a joint income of £49K.
Professor David Bell of Stirling University warned in semi-apocalyptic terms that the new tax would hit hard the young people whose earnings had to pay the pensions of an ageing population and who were struggling with student debt, family responsibilities, and the difficulty of getting on the housing ladder. It would “break the contract” of the welfare state, he warned. It would also risk deterring women from entering the work-force forcing employers to pick up the bill for the higher tax.
The Scottish CBI lost no time in wading in against the scheme, arguing that having the highest basic and upper rates of tax in the UK was a great way of deterring investors and undermining attempts to create the enterprise economy which is the mantra of modern politics.
But Swinney has a much more immediate problem, even with a projected date of introduction not til 2011/12. The sums don’t add up. The Scottish Media claims that there is a “black hole” of £710m. The LIT at 3p would raise about £1.7bn against a Council tax yield of £2.3bn. Matt Smith, the Scottish Secretary of Unison, has helpfully suggested that local income tax would have to be set at 6.5p in the £ to match the revenue from Coouncil Tax.
Swinney is also counting on continuing to receive £400m in council tax benefit even after the demise of council tax – an assumption the British Government has enthusiastically rubbished. There is also the small matter of collection costs – though whether the Customs and Revenue would collect it on behalf of Edinburgh is not settled.
Dark voices suggest that the SNP, stuck with a party conference mandate, will not be heart-broken if the scheme proves undeliverable. It is not clear what wriggle-room the Lib-Dems have on their demand for local determination and, in accordance with Curry’s Second Law of Politics, losers always shout louder than winners. If London can be blamed for any failure (that £400m again!) so much the better.
The consultation paper, largely in the form of a questionnaire with boxes to tick, comes in at under 40 pages cover-to-cover even including the usual hyperbolic ministerial introduction. But will it be the revolution which sets all Britain on fire? To answer yes to that would make you a real Braveheart.
© Local Government Chronicle
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