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Wee chat on a big issue

Brian Taylor | 17:30 UK time, Monday, 10 March 2008

It will be a meeting of minds, certainly, but also a convocation of uncertainty.

This evening the Finance Secretary John Swinney is due to have a wee chat with his LibDem opposite number, Tavish Scott.

On the agenda? Whether or, more strictly, how to replace the council tax with a local income tax.

The political snags? Legion, as recounted previously here. In sum, they are these.
• SNP Ministers favour a fixed 3p tax on income for all councils; the LibDems want local variation.
• Even if they do a deal, that doesn’t add up to a majority in the Holyrood chamber: Labour and Tories will oppose; Greens favour taxing property
• Even if they surmount that, the Bill would have a rough ride in committee
• Even if the Bill gets through, UK Ministers say they would withhold council tax benefit if council tax is scrapped.

But, hey, welcome to minority government. Welcome to Scottish politics. This is perhaps particularly challenging but ministers have, so far, won more battles than they have lost, including the Budget.

However, there is another small matter to be considered. Should they win this battle? Is this the right policy for Scotland? Firstly, the upside.
• Local income tax is based, by definition, on ability to pay – with exceptions (see below)
• Ministers say most people would pay less – but that’s partly because they plan to peg the rate of LIT at 3p in the pound, by providing an extra £450m from the Scottish Government budget (also, see below)
• Those on low fixed incomes (such as pensioners) who pay their whack in council tax would gain
• Those with savings income would gain. That wouldn’t be taxed
• Those with income from stocks and shares would gain. Ditto. (See below)
• LIT isn’t the council tax – just as council tax wasn’t the poll tax

Next the downside:
• That “local tax cut” of £450m comes out of money for other services in Scotland
• Fixed rate LIT means there is no local accountability by councils for what they raise
• Higher income tax is, arguably, a disincentive for employment
• Lifting a tax on property might inflate the housing market
• LIT might be a problem for employers – especially if there’s a variable rate
• Those exceptions: no LIT on the seriously wealthy, those whose money comes from savings and stocks
• If council tax benefit is scrapped, that’s another £400m to find in Scotland

Finally, is it fair to remove council tax benefit? Yes and no. Again, by definition, LIT is designed to be fairer to those on low incomes.

It is designed to alleviate the very distress which council tax benefit addresses. Why should the benefit still be paid if the problem has gone? No pain, no gain, as the DWP might say.

Then again, council tax benefit is paid en bloc to local authorities, not to individual recipients.

It could, arguably, be viewed as an integral part of council finance, not a benefit.

It has in the past, on the margins, been varied according to the Barnett Formula, not simply individual need. That means, say ministers, it’s formulaic, not demand led.

So, why not use the Barnett Formula permanently to provide Scotland with continuing cash, post the abolition of council tax?

An intriguing debate. Join in, please. With the customary appeal – which will no doubt be ignored – for evidence-based contributions rather than partisan bickering.

Comments

  • 1.
  • At 06:10 PM on 10 Mar 2008,
  • jim k wrote:

Partisan bickering Brian?

Thats rich, coming from you-the BIGGEST partisan of them all!

You can argue about the 'purpose' of council tax benefit until you're blue in the face, but the end result is that either the pot of money available to local government shrinks, or there has to be an overall tax rise.

Labour knows this. Whether or not they are using it to their advantage maliciously is up for debate.

So we might end up in a situation where Scotland's share of tax revenue drops, without any drop in the amount of tax paid. Maybe this will silence those in England who call us 'subsidy junkies'? If you're a pig farmer, maybe now is the time to invest in a hot air balloon.

  • 3.
  • At 07:40 PM on 10 Mar 2008,
  • talorthane wrote:

"Asked if the Prime Minister agreed with Alex Salmond that the £400million Council Tax benefit that goes to Scotland was part and parcel of Scotland's funding, the PMS replied that he would have to check the detail on that point."

A week after his minister (James Purnell) categorically stated that there would be no council tax benefit for Scotland in the absence of a council tax, the Prime Minister is suddenly unwilling to commit himself on the matter.

  • 4.
  • At 07:54 PM on 10 Mar 2008,
  • Andy Moffat wrote:

If somebody who works in England owns a property in the Highlands - will they be taxed?

  • 5.
  • At 08:43 PM on 10 Mar 2008,
  • The Answer wrote:

http://www.dwp.gov.uk/asd/asd4/Table8.xls

£400 million is a number plucked from thin air, however if (and I hope they do)get paid CTB, £4 billion will accur to England.

Go SNP !

  • 6.
  • At 08:50 PM on 10 Mar 2008,
  • Math Campbell wrote:

To Andy Moffat (No. 4).
A) Probably not. This would refer to those resident in Scotland, not city-traders from london that own a 'holiday-home' (or island) in Scotland.

With regards this though, given the huge amount of problems that these 'holiday-homes' cause for local communities, driving up property prices, making some villages nothing more than seasonal holiday camps etc. I am firmly of the opinion that the Scottish government should step up to the plate and do the unpopular, namely mandate that to own a home in Scotland, or at least certain areas (such as the Highlands and Islands), you must be resident in the country for more than 6 months of the year.

Not only would this bold move drive down property prices in the rural areas where people have to move away when they come of age because they simply cannot afford a house in the village they grew up in, it will also have the affect of freeing up housing stock for said locals to buy.
On a side note, it would also mean less annoying tourists from "landon, init?" that buy up said housing stock and contribute nothing to the local community except on their twice annual two-week visits when they complain that the local shop doesn't have their brand of bottled water, and what are all these "funny" banknotes, don't we have any 'real' money?, patronisingly insult the "yokels" and in general make a general nuisance of themselves.

On the proposed LIT, yes we should have. It would drive down tax on the poorest. No, those who live off stocks and shares shouldn't have an easy ride; it should affect them the same, and yes, the UK Govt should hand over the cash from the (soon-to-be-former) Council Tax Benefit.

Either that or the voting masses finally get what I've been saying for years, that we don't need London, or it's meddling, or it's taking our taxes then if we're good boys and girls giving us some pocket-money, or it's wasting billions on Nuclear weapons we don't need/want, or it's wasting billions on Olympic Games in another country that we'll see no economic benefit from, or any of it's many other varied shenanigans.

'Course, I may be sounding a little "partisan" there. If you can guess which party I voted for, that is :).

  • 7.
  • At 09:01 PM on 10 Mar 2008,
  • John Leven wrote:

Brian

Just a small point that you may clear up for me.

You said,• LIT might be a problem for employers – especially if there’s a variable rate.

How does this become a problem now that there is an SNP proposal on the table?

Was it never a problem (never a reported problem anyway) when the Scottish parliament was first set up and part of that was the ability to vary the rate of income tax by up to 3p.

Once again one rule for SNP initiatives and another for everyone else.

  • 8.
  • At 09:13 PM on 10 Mar 2008,
  • Andra wrote:

Good point #4, high earners could move their principle residence to south of the border - just pay the English level of income tax, yet live some or all of the time in Scotland. Or if you own a limited company then take all your income as dividend and not make any contribution.
The SNP are acting for votes not for the good of the country. While motoring is being taxed to reduce it's impact on the environment why does the Scottish government want to remove property tax so as to encourage us to live in bigger houses that need more energy to heat.

  • 9.
  • At 09:29 PM on 10 Mar 2008,
  • Conway wrote:

Come on Brian how many decentralised countrys manage a system of local tax and benefit. Austrailia,Canada,USA,Germany etc its just that rather than looking at a problem with a positive viewpoint and a can do approach. We have the same old narrow inward negative dirge from our Unionist kin that i have been hearing for the last 30 odd years. Brian its time for a change the Unionists have had there chance... time to give the internationalists a go .

  • 10.
  • At 09:38 PM on 10 Mar 2008,
  • Scamp wrote:

#8

Why would you deliberately want to live in a bigger house that would cost you a lot more money?

  • 11.
  • At 09:55 PM on 10 Mar 2008,
  • Richard the Rogue wrote:

What #4, Math Campbell said.

  • 12.
  • At 10:25 PM on 10 Mar 2008,
  • Andrew wrote:

Why do the opponents of LIT always quote the example of people who live off the income from their stocks and shares? Should the overall fairness of the LIT be disregarded because a FEW people can dodge the system (they probably dodge paying any tax on their unearned income as well).

There may be some questions on LIT, but I find the attitude of the Labour Party disgraceful. They've had 8 years to do something about a regressive tax and have done zilch.
How can so-called Socialists defend a regressive tax and oppose a progressive tax?
Oh I forgot they propose to introduce another Council Tax band---that will sort everything out.

  • 13.
  • At 10:48 PM on 10 Mar 2008,
  • Annoyed wrote:

Sometimes I think the postings on this 'blog' are just made by sad dyed in the wool SNP operatives who have been saving all their bile and collecting chips on their shoulders, waiting for a chance to type about their prejudices. I guess 'Math' Campbell and his boring diratribe voted SNP or BNP. What do you do for kicks? Spend time in the Highlands shouting verbal abuse at English people who pay their council tax locally? Paint "Settlers go home" on road signs? Maybe you would advocate the harassment of Scots in "Landon init" or the errection of border posts when your dream of independence from your great oppressor (?????!!!!) The one saving grace about this forum is that out of the 5 million or so citizens in Scotland, the only same old tired readers ever make a comment, what a relief the people of Scotland are still on the whole friendly and sensible. Well speaking as a poncy twerp from south of the border in "Landon init", who uses "funny" banknotes in shops in Dorset (that'll nicely moi luver)and has a flat in Edinburgh (cuncil tax which is FULLY paid up by ME, ken)all I can say is I think the coming together of two parties to remove the council tax is a good thing and wish it would happen down here too!

  • 14.
  • At 12:51 AM on 11 Mar 2008,
  • PM wrote:

Brian,

I believe that since local government issues are a devolved issue for the Scottish Parliament, then there must be funding which is matched with English local government spending. My understanding is that this is done through Barnett consequentials, which are calculated in proportion to population.

So, therefore the Scottish Parliament must receive some sort of reimbursement for local government spending which is not in the form of council tax benefit.

What do you think?

  • 15.
  • At 12:51 AM on 11 Mar 2008,
  • Steve A wrote:

10#
You must wish you had a government that looks out for England as well as our snp government does for Scotland!HEY perhaps you even wish that Alex Salmond was English!If i was English i would! as i know quality when i see it.Do you?I detected a wee bit of envy in your post.

  • 16.
  • At 01:43 AM on 11 Mar 2008,
  • w alexander wrote:

In Canada and the US where I live part of the time the municipal tax is based on the market value of the house and attached property. It is not an income tax. The higher the assessed value of the house the more you pay. Simple as that.

  • 17.
  • At 07:27 AM on 11 Mar 2008,
  • Mike wrote:

Its a pity that Annoyed appears to hate us Scots so much, when we have absolutely no problem with the English People.

Why would you think for a moment that there is such a divide, when all we want is Scottish People running all aspects of our Country. Smal Independant Nations are on the whole very successful, and definately observe traditional democracies.

Whatever your personal reasons are, we wish you all the best and hope that the English People succeed in getting English People running an English Government, for the People and their will.

Perhaps the chips are on your own shoulder and might result in a very balanced comment.

  • 18.
  • At 07:31 AM on 11 Mar 2008,
  • Wansanshoo wrote:

In Rely To # 6

Can you please explain why you voted as you did, apart from LIT taxes, the party you voted for have nothing in common with you. They do not wish to 'drive' rural house prices down, they wish to assist first time buyers,they do not wish 'annoying tourists'away, in fact they welcome them with open arms in conjunction with the The Scottish Toursist Board.

It may come as a surprise to you, but I voted for the same party, perhaps our only difference is, I read the party manifesto prior to voting.


Wansanshoo.


  • 19.
  • At 08:14 AM on 11 Mar 2008,
  • Irving Parry wrote:

Surely, everyone must agree that the Council Tax is unfair, because it does not take into account peoples'ability to pay it. LIT is fair, because a tax on income is based on folks' ability to pay. The problem is that LocaL Authorities have got used to demanding ever increasing sums from us and have expanded their activities to include Councillors' "jollies" - including, in my area, a Toilet Conference in Portugal!! It is time that Local Authorities cut their coat according to the cloth available - like the rest of us. If they threaten to cut local services, then vote them out next time. Keep voting them out until, like a responsible private company, they keep within a budget.

OK, let's talk about how local government is financed.

First the big picture: as I keep banging on, Scotland's local government divisions are among the largest in the free world. They're vast. The idea that we even have 'local' government is simply false. One Scottish local government region has three times the population of the average Danish local authority; four times, of the average Swedish or Dutch; twelve times the average for Norway; thirty six times the average for Iceland; or eighty four times the average - the average - for France. If we're going to reform local government, one of the key things is to get democracy closer to the people by greatly increasing the number of local government divisions.

Secondly, how we balance the cost of it. We currently pay for local government largely through central taxation; therefore there is no democratic accountability. Obviously, some local government divisions have a richer tax-base than others. But it is not good for democracy for central government to finance local government; the other way round would be much more sensible. The least we should be aiming for is to reduce central taxation, and increase local taxation, to the point that the richest local government units receive no money at all from central government.

Thirdly, what we tax. With our current rampantly speculative property bubble, tax on the value of houses is grossly inequitable, because the value of housing no longer relates to anything in the real economy; many - especially older - people live in houses that they could not possibly afford to buy.

The things it is equitable to tax are income and wealth. A suitably graduated tax on income is progressive - it moves wealth from the rich to the poor. But it is much easier to collect it from those who have regular jobs with large employers than from the self employed, which leads to actual inequities; the rich can be awfully good at hiding income. Land is much harder to hide, which is a real benefit of land tax. But I'd like to see a mix of local income tax and land tax, with both graduated.

Fourthly, where we pay tax. One of the problems of the great automobile society is we don't live where we earn. Cities are, in the internet age, largely uneconomic; but they're especially uneconomic if all their largest earners work - and therefore incur costs - in the urban centres but pay their local tax in the suburban periphery. There needs to be some balance between paying tax to the municipality of the workplace and paying tax to the municipality of the domicile.

I am an unashamed supporter of this government but I think they've got this policy seriously wrong. Setting the level of tax nationally - even as a transitionary measure - is a bad idea which will be very hard to unravel. Even more seriously, shifting taxation from local to central is a retrograde step which further undermines the tattered remnants of local democracy.

  • 21.
  • At 09:01 AM on 11 Mar 2008,
  • G Ford wrote:

Usual BBC Unionist Brian at his best....Six Upsides and Seven Downsides.
Still its probably just me.

  • 22.
  • At 09:31 AM on 11 Mar 2008,
  • Stewart wrote:

Its just the same old nonsence from Westminister and Herr Brown. Not happy being able to control everyone through puppets jack and Wendy he gets his still loyal flying monkeys to keep going on about how worse Scotland would be under the SNP even though most people are still very happy with the minority government and what they are doing

  • 23.
  • At 10:06 AM on 11 Mar 2008,
  • LYDIA REID wrote:

In answer to Annoyed
When Independence comes it may be we will rebuild Hadrian's wall and electrify it but only for people who still believe we Scots still run around in kilts eating haggis and English bashing. It may surprise you to know that as well educated and home loving Scots we simply see the financial benefits of a Scotland able to use and benefit from our own income and develop even more pride in what Scotland can achieve as a nation. I do not hear as many Scots complaining when Westminster spends our money as I do the misinformed English public who truly believe they still support the Scots financially.

If you have a house in Scotland you must be benefiting financially through Scotland either through business or renting your house out or -well- perhaps you may even enjoy holidays in Scotland and I can't blame you for that and I could bet you have been made welcome, as we Scots do and are famous for.

I believe, as I have said before, it may be you would benefit from borrowing Alex Salmond and the SNP team When they decide on the best way forward for local tax I am sure they will come down and sort out your finances we Scots are a warm hearted nation.

  • 24.
  • At 10:29 AM on 11 Mar 2008,
  • Iain Martin wrote:

Aren't we all missing the point really ?

The government - either that of the UK or the collection of self important muppets in Holyrood spend our money, yes people, that is your money and my money on the "projects" that appeal to them.

The government has no money of it's own, only what it takes from us and this is all smoke and mirrors to try and persuade us that they are being "fairer" in how they empty our pockets.

Realistically, what we need is LESS government, less spending and greater freedom to spend our own money, not more arguing about how they are going to tax us.

I am part of a childless couple, with a decent mid range income, why should I face the prospect of paying more of my earnings to subsidise the education of the offspring of others, to pay for leisure facilities that I don't use, to pay for rubbish to be collected from those less careful or with larger households than my own ?

It is time the people of Scotlan woke up to "The big lie" - devolution hasn't brought power back to the people of Scotland - it has merely transferred a little power to an EXTRA LAYER of politicians operating from Holyrood rather than Westminster.

Real devolution gives YOU the power to make decisions about the things that matter - not merely telling you that the political "masters" will now be located in Edinburgh rather than London. We are still trapped in the suffocating mess of having our lives run by politicians rather than by ourselves.

What has devolution really achieved -what freedom as an individual do you enjoy today that you didn't enjoy prior to devolution ? I don't mean what is subsidised now that wasn't before, I mean what power do you as an individual have over your life that you didn't have before and what power over your life has the government now relinquished ?

What we need is true devolution of powers - back to the individual people from the government.

The "Iron Lady" was misunderstood when she uttered the immortal words that "There is no such thing as society". Society is a collection of individuals, with individual thoughts, dreams, needs and aspirations not a flock of sheep with a collective will and to believe in "society" as the focus of our attentions does a great disservice to freedom and the individual.

  • 25.
  • At 10:45 AM on 11 Mar 2008,
  • stephen wrote:

to John Leven,


Sorry mate i have to agree with Brian here. Variable rates would be a problem because unlike the 3p in the pound national income tax, if you lived in Greenock and worked in glasgow and the rates were 2% in strathclyde and 3% in greenock then the company would have to take account of the differences be continually updated on the address and living areas of all employees. Not a huge problem for the local pub but for big manufacturers such as IBM with hundreds of commuters from many different local authorites it would be an administrative nightmare and incredibly costly to implement driving down the economical benefits of basing your company in Scotland.
Im afraid a variable rate of LIT is bad for the country I think the SNP have got it right on this one a fixed LIT is the way to go. Secondly I disagree with the mega rich living for nothing off stocks and shares, every source of income above 15k per individual should be taxed. However finding out who has what, could be as expensive as taxing them.

  • 26.
  • At 11:10 AM on 11 Mar 2008,
  • Colin wrote:

If the money (400-450M) comes to Scotland currently and is due to Scotland, then just because the administration tinkers with local taxation shouldn't mean we lose out.
Unless of course Mr Brown is being malicious - and just looking for a fight with Scotland?
I would guess that he be delighted on the run-up to a UK election to get his Darling to do anything to keep us sweet.
What is great to see is the 'can do' approach adopted by the SNP. They are quite prepared to sit down and talk constructively with all sides - trying to find 'common purpose'.
At the forefront is a desire to make Scotland fairer - and the Council Tax is not a fair tax. Nobody likes paying taxes - especially the very rich - who go to extraordinary lengths to make sure they contribute as little as possible towards the society that has rewarded them so well.
LIT has to be a small step in the right direction - and I'm sure that detail will sort out most of the consequential difficulties that may arise.
As for Labour - John Hutton, Business Secretary is saying that "The UK should "celebrate the fact that people can be enormously wealthy in this country". All very well - if they eliminated poverty as quickly as they've allowed the wealth gap to become a chasm.
Perhaps the Labour Party firmly believe that the poor will just have to wait to get their reward in heaven?

On the face of it, as progressive taxes go, LIT is fairer than council tax. It's based on ability to pay rather than the value of a house (which may not even be your own). It also ensures that everyone who is working contributes their fair share.

But it's not quite as simple as this. Firstly it shifts even more of the burden of taxation onto what is increasingly a smaller proportion of the population (given that pensioners are increasingly a larger part of society). Furthermore it actually lets the super-rich off the hook if they live off shares, savings, etc.

The main problems with LIT are not about fairness - it's about the process involved in collecting the money and the amount which will be collected. LIT will raise less money than the council tax does; Westminster is claiming that Scotland will not be entitled to council tax benefit money if LIT is introduced; and there could be a major burden on business to pay for this.

Taking it one at a time: yes, LIT at 3p in the pound will raise less than council tax does - there would have to be some cuts in service (whether in local council or elsewhere) to pay for this; Westminster is wrong on the benefit - Scotland should get its proportionate share if LIT is introduced; and finally, if LIT is set nationally (not strictly speaking local then) it is not too much of a problem, if it's set locally it could be.

None of this gives us an answer as to whether or not we should scrap council tax, introduce LIT or do something else entirely. As to my own opinion I'm open to debate - let's see what John Swinney proposes and what the full implications of this are. Then we can at least begin to make an informed decision.

  • 28.
  • At 11:26 AM on 11 Mar 2008,
  • William Campbell wrote:

I'm surprised that we aren't having a more detailed debate about the nature of taxation.

People's capacity to pay taxes can be reflected in different ways.

Income is the most obvious - and on the face of it the most socially desirable in that it should hit the richest hardest. Its difficulty is that it is too easily avoidable; tax avoidance is largely Income Tax avoidance.

Spending is the least avoidable, and given that you can eventually only spend what you have earned, it does in some way reflect ability to pay. It is, however, extremely inequitable, with the same rate of VAT being paid by everyone. It also hits hardest those who have to spend all of their income and can't afford to save - the least well off.

Property - wealth accumulated and held - should properly be taxed too. Not all property can be assessed for taxation, including some which holds its value and can be sold on (jewellery, paintings) but buildings and land can't easily be hidden away. Council tax on houses and non-domestic rates on commercial buildings are taxes which are difficult to avoid, and are closely linked to local services which are provided and consumed in the areas where the buildings are located. They impact on property owners who live elsewhere for part of the year and pay (or don't pay) their income tax to a different jurisdiction. The less well-off can be protected through Council Tax Rebate.

One final note - local authorities don't raise enough of their own revenue at the moment. This has the dual effect of making them less accountable than they should be for the decisions they take, and giving an impact to the marginal changes they have made to council tax levels which is out of all proprtion to its impact on their capacity to provide services. If we must have Local Income Tax it is absolutely critical that it is set locally; it would be inexcusable to have a national level which removes all freedom and responsibility from local authorities to make judgements about the overall funding and overall level of services in their area. It would also have the effect of freezing permanently the balance of service provision between authorities at the 2007 budget level, irrespective of changes in political allegiance since or in the future.

(In case this should seem self-interested, by the time LIT could be introduced I will probably have retired, and will still be living in my relatively large house - so the SNP government's proposals would suit me fine!)

  • 29.
  • At 11:33 AM on 11 Mar 2008,
  • Steve wrote:

Brian, I think the Greens favour taxing land value rather than property. Not quite the same thing!

Council Tax is also a disincentive to work for poorer households, as it is so regressive for people coming off unemployment benefits.

There's no reason why a nationalist should support income tax over property tax, but it certainly serves to highlight that Scotland's fiscal arrangements are currently highly circumscribed.

It is worth pursuing this policy just to clear up the mess that is local government finance.

On the face of it, as progressive taxes go, LIT is fairer than council tax. It's based on ability to pay rather than the value of a house (which may not even be your own). It also ensures that everyone who is working contributes their fair share.

But it's not quite as simple as this. Firstly it shifts even more of the burden of taxation onto what is increasingly a smaller proportion of the population (given that pensioners are increasingly a larger part of society). Furthermore it actually lets the super-rich off the hook if they live off shares, savings, etc.

The main problems with LIT are not about fairness - it's about the process involved in collecting the money and the amount which will be collected. LIT will raise less money than the council tax does; Westminster is claiming that Scotland will not be entitled to council tax benefit money if LIT is introduced; and there could be a major burden on business to pay for this.

Taking it one at a time: yes, LIT at 3p in the pound will raise less than council tax does - there would have to be some cuts in service (whether in local council or elsewhere) to pay for this; Westminster is wrong on the benefit - Scotland should get its proportionate share if LIT is introduced; and finally, if LIT is set nationally (not strictly speaking local then) it is not too much of a problem, if it's set locally it could be.

None of this gives us an answer as to whether or not we should scrap council tax, introduce LIT or do something else entirely. As to my own opinion I'm open to debate - let's see what John Swinney proposes and what the full implications of this are. Then we can at least begin to make an informed decision.

  • 31.
  • At 12:05 PM on 11 Mar 2008,
  • Graeme wrote:

Yet more tax is a disincentive to work. This is more populist political posturing. Why don't we return to a very simple method of paying for what we use. Regardless of income or house size the majority of people use cleaning services or street lighting. Most use schools (families)or local support services (the elderly) just becuase some of us work damn hard why should we we pay more for the same service that is provided free to the lazy.
This would also mean that elected councils can be held accountable for spending our money on our services.

  • 32.
  • At 12:15 PM on 11 Mar 2008,
  • Dave "Boy" wrote:

My questions about LIT...

1. How does it help local authorities drive efficiency improvements? If they get the 3% regardless, is there any accountability to the taxpayer, and any drive to provide better services at lower cost?

2. What if the economy turns down suddenly and the "take" from 3% LIT reduces? Are local jobs & services immediately put at risk?

3. How does 3% gathered in Shettleston compare with 3% gathered in Newton Mearns? Is Shettleston going to be penalised in terms of services because it has a poorer population? Or is there going to be cross subsidy across local authorities (again with corresponding loss of accountability)?.

4. Workability. What is the eligibility criteria. Residence? Voters Roll? What if (as with a lot of Multi Nationals) your Income Tax is collected in England even though you work in Scotland?

My general feeling is that LIT is as imperfect a system as the one it is intended to replace.

  • 33.
  • At 12:22 PM on 11 Mar 2008,
  • Colin wrote:

If the money (400-450M) comes to Scotland currently and is due to Scotland, then just because the administration tinkers with local taxation shouldn't mean we lose out.
Unless of course Mr Brown is being malicious - and just looking for a fight with Scotland?
I would guess that he be delighted on the run-up to a UK election to get his Darling to do anything to keep us sweet.
What is great to see is the 'can do' approach adopted by the SNP. They are quite prepared to sit down and talk constructively with all sides - trying to find 'common purpose'.
At the forefront is a desire to make Scotland fairer - and the Council Tax is not a fair tax. Nobody likes paying taxes - especially the very rich - who go to extraordinary lengths to make sure they contribute as little as possible towards the society that has rewarded them so well.
LIT has to be a small step in the right direction - and I'm sure that detail will sort out most of the consequential difficulties that may arise.
As for Labour - John Hutton, Business Secretary is saying that "The UK should "celebrate the fact that people can be enormously wealthy in this country". All very well - if they eliminated poverty as quickly as they've allowed the wealth gap to become a chasm.
Perhaps the Labour Party firmly believe that the poor will just have to wait to get their reward in heaven?

  • 34.
  • At 12:25 PM on 11 Mar 2008,
  • Dethadol wrote:

Another downside:

The huge number of largely unoccupied holiday/second homes in my area (Lochaber) would be relieved the burden of council tax without a corresponding increase in LIT from the owners who are largely resident in England.

  • 35.
  • At 12:30 PM on 11 Mar 2008,
  • Graeme wrote:

Yet more tax is a disincentive to work. This is more populist political posturing. Why don't we return to a very simple method of paying for what we use. Regardless of income or house size the majority of people use cleaning services or street lighting. Most use schools (families)or local support services (the elderly) just becuase some of us work damn hard why should we we pay more for the same service that is provided free to the lazy.
This would also mean that elected councils can be held accountable for spending our money on our services.

  • 36.
  • At 12:49 PM on 11 Mar 2008,
  • neil wrote:

Higher income tax is, arguably, a disincentive for employment - I don't think so the biggest hurdle in getting people out to work is the benefits system. So take a minimum wage job live in an average house and you end up with council tax of £40 per week to pay out of your £200 per week gross, put on earnings at 3p in pound and it's £6 doesn't take a rocket scientist Brian - it's a lot fairer for the low paid and could say a considerable sum in benefits

  • 37.
  • At 01:14 PM on 11 Mar 2008,
  • Lisa wrote:

I work in Scotland for an English company (in their Edinburgh office), and my pay goes from my English employer's English bank account into my England-based bank account. I then spend it all up here.

How will the Scottish government get my money?

  • 38.
  • At 01:26 PM on 11 Mar 2008,
  • Malky the pail wrote:

Regardless of who your political leanings are with,the council tax as it is at present is unsustainable in a fair society.I live with my 18 year old son next door to a family 6 all in full time employment and they pay the same council tax as me,although they use a far greater amount of the local ammenities and services than we do with a far higher income.Inequalities are not just between the poor and the high and mighty.

  • 39.
  • At 01:37 PM on 11 Mar 2008,
  • Laura wrote:

#19 here here! Seems the average tax payer is the easy target for this dictatorship, let the lazy off scot free coz they are too dificult to manipulate and certainly don't challenge the wealthy coz they wont bend over either. Pay for what you use - it's that simple. if I earn and the my welfare friendly neighbours don't do i get a better service - no! So what's fair about that - or is it just the easy option - again?

  • 40.
  • At 01:42 PM on 11 Mar 2008,
  • Gordon McCaskill wrote:

LIT, in principle, sounds like a very good idea if for no other reason than there can be nothing other than a 100% collection rate which is substantially higher than the current collection rate for Council Tax. Whether it is 400 million higher is, of course, open to debate. However, I think we can all agree that even if H.M. Government withholds a proportion of the 400 million grant, they are highly unlikely to withhold all of it, without paying a very heavy political price in lost Labour seats.

As for local accountability, the key feature of this is not accountability, most Councils are officer-led with Local Councillors acting as a rubber stamp (unless something very controversial comes up), but rather whether the amount collected in LIT will be specifically spent in the areas where it is collected of which there is absolutely no guarantee. Most politicians would argue that this would lead to gross inequality, ignoring the fact that gross inequality already exists virtually without mitigation.

The downside, not referred to by our esteemed author, is that LIT will fall disproportionately on the low paid, non-occupier, i.e. the children of current Council Tax payers (either resident with parents or living in shared rented flats)a group who have never previously paid Council Tax, but a group who were also deeply affected by the despised Poll Tax and likely to react in precisely the same fashion.

I wonder if the Scottish Government and the Liberal Democrats have considered this likelihood?

  • 41.
  • At 01:48 PM on 11 Mar 2008,
  • Confused Colin wrote:

How would LIT be collected? My understanding is that it would be collected via employers similar to PAYE, as Local Authorities are not legsilated to collect as at present under Council Tax. Once your employer deducts LIT, where do they send it to and how does it then get divided up. Final point what if the company that you work for is registered in England and has a mixed work-force north and south of the border...what then? Finally, at the end of the day how does it make local authorities more accountable.

  • 42.
  • At 02:12 PM on 11 Mar 2008,
  • Dan Ches wrote:

Some quick arithmetic leads me to believe the average taxpayer will be worse off.
If we take a cohabiting couple, each earning an average salary of around £23k, living in a band D property in, say, Renfrewshire (£1164).
Under this proposed LIT at 3% of income, they will pay £1380 - effectively a rise of 18.5% compared to the council tax.
Of course, a person living alone may well be better off - perhaps this may lead to a higher number of single-person households and concomitant property price inflation.

I am quite pro-SNP, and have been fairly happy with their performance since coming to power, but I fear this plan will play into the hands of the pro-Union parties. A LIT is a good idea in principle and works well in the US and other countries, but I think 3% is too high.

  • 43.
  • At 02:12 PM on 11 Mar 2008,
  • Kenny wrote:

Before I start may I clear any partisan accusations to say I have probably voted at some time or another for all 4 of the big parties, so consider these the thoughts of a 'floater'.
I'm largely in favour of the LIT for one overwhelming reason-
It is taxed at source, which means not only is it not taxed twice [i.e. once when you earn it and once when you have to pay the council tax - I know that is factored in, but we are talking perceptions here], but it is out and gone from your pay packet before you get a chance to spend it. Remembering back to when I was younger and skinter, if you were hard up it was the commercial debtors that called the most, made the biggest threats and got paid first. The poxy 'cooncil' [and they are all by nature poxy and the biggest sore on our country IMHO] was the last to get it's money. I'm sure this is not just my view - I reckon most council tax debt is caused by the fact that it is a 'non essential'. Don't pay the mortgage - they take your house, don't pay the elec, they cut you off, don't pay the council tax and what happens - nowt really.
The agruement against this is that famlies should budget - of course they should, but when you are up against it it takes a strong sort of person to resist those who shout the loudest.

Now regarding the current debate, am I missing something or is there not just a simple solution. Holyrood already has the ability to raise income tax by [up to] 3p in the pound, and I am assumung that the revenue has contingency plans in place to cope with this. They must have had so for years now surely?
Why doesn't the SNP go for a double split. Keep the council tax in place, but collect the LIT from everyone who earns through scottish based companies and their payrolls, and then issue them with a council tax rebate equal to their current level to zero that bill. Hence all scottish earners will pay only through the LIT. All others, such as people working through english payrolls, or those on benefits, would pay the current council tax levels in the same manner as now. Therefore since the council tax was still in place the question of the council tax benefit payments to those who need it would remains as it is now.
Is this just me being simple?

  • 44.
  • At 02:38 PM on 11 Mar 2008,
  • Daniel Paul wrote:

Some quick arithmetic leads me to believe the average taxpayer will be worse off.
If we take a cohabiting couple, each earning an average salary of around £23k, living in a band D property in, say, Renfrewshire (£1164).
Under this proposed LIT at 3% of income, they will pay £1380 - effectively a rise of 18.5% compared to the council tax.
Of course, a person living alone may well be better off - perhaps this may lead to a higher number of single-person households and concomitant property price inflation.

I am quite pro-SNP, and have been fairly happy with their performance since coming to power, but I fear this plan will play into the hands of the pro-Union parties. A LIT is a good idea in principle and works well in the US and other countries, but I think 3% is too high.
A lower level could surely be set if, as suggested by Iain Martin above, we could have a smaller government - the size and complexity of our government system is crazy for a country of this size.

  • 45.
  • At 03:19 PM on 11 Mar 2008,
  • G wrote:

According to the (vague) proposals currently on the table from the SNP, landlords will be charged the LIT at their primary residence and corporation tax at their other residencies (approx 28% if my memory serves me well).
Many landlords do not pay council tax on their properties - the tenant does so.
If landords adopt the same ideal with the LIT, the tenant will pay 28% (of the rental income of the landlord??) PLUS the LIT.
I'd like to know where the fairness is in that. I'm sure the landlord isn't losing out...?

  • 46.
  • At 03:22 PM on 11 Mar 2008,
  • Christopher Gray wrote:

To get a compromise between the SNP and the LibDems, why don't they implement both:

1. A Scottish Income Tax of 2.75%

2. Allow local councils to still levy Council Tax, which for the Western Isles would be nothing, and for Aberdeen would be £206 p.a. on a band D home.

Surely that meets both the SNP and LibDem requirements - a single rate of income tax, and accountability for Local Councils. And Council Tax benefit would still be applicable.

  • 47.
  • At 03:28 PM on 11 Mar 2008,
  • STEVIE ALAN wrote:

Remember when Scots hit the streets to protest about the Poll Tax. Well LIT is Poll Tax at source. You pay 3 %, your wife/partner will pay 3 %.Any working kids will pay 3%. People in lower banded housing will face massive increases. I just don't understand how people dont see this.This is stealth Poll Tax at its most nasty.Incredible that we could be heading down this road. Stevie.

  • 48.
  • At 03:30 PM on 11 Mar 2008,
  • Christopher Gray wrote:

To get a compromise between the SNP and the LibDems, why don't they implement both:

1. A Scottish Income Tax of 2.75%

2. Allow local councils to still levy Council Tax, which for the Western Isles would be nothing, and for Aberdeen would be £206 p.a. on a band D home.

Surely that meets both the SNP and LibDem requirements - a single rate of income tax, and accountability for Local Councils. And Council Tax benefit would still be applicable.

  • 49.
  • At 03:55 PM on 11 Mar 2008,
  • Ben wrote:

The Council Tax is far from perfect, but I'm somewhat sceptical about what's being proposed here. If everyone except the super-rich is going to pay less, how will it raise as much money as Council Tax brought in?

...and that's even if they manage to hold onto the Council Tax benefit funding.

We are already seeing essential council services being squeezed due to the SNP's freeze on Council Tax this year - will a local income tax mean there's even less money to pay for council services?

  • 50.
  • At 04:07 PM on 11 Mar 2008,
  • maximus wrote:

well its is fairer on most as the cost will be spread out more. Imagine a house with 2 working parents and two working children the share of the load would be spread over the 4 wages..not many parents charge their kids council tax. As for collecting it then i am sure that a wee tip tap of the IR computer to add 3% to all scottish postcodes would be easy enough.

Also it might make affluent areas get more benefits as they would have more money coming in and make less affluent areas attempt to get more 'work' in their community...sounds like a good thing to me.....I will most likely be one of the ones who are worse off.

Before I start may I clear any partisan accusations to say I have probably voted at some time or another for all 4 of the big parties, so consider these the thoughts of a 'floater'.
I'm largely in favour of the LIT for one overwhelming reason-
It is taxed at source, which means not only is it not taxed twice [i.e. once when you earn it and once when you have to pay the council tax - I know that is factored in, but we are talking perceptions here], but it is out and gone from your pay packet before you get a chance to spend it. Remembering back to when I was younger and skinter, if you were hard up it was the commercial debtors that called the most, made the biggest threats and got paid first. The poxy 'cooncil' [and they are all by nature poxy and the biggest sore on our country IMHO] was the last to get it's money. I'm sure this is not just my view - I reckon most council tax debt is caused by the fact that it is a 'non essential'. Don't pay the mortgage - they take your house, don't pay the elec, they cut you off, don't pay the council tax and what happens - nowt really.
The agruement against this is that famlies should budget - of course they should, but when you are up against it it takes a strong sort of person to resist those who shout the loudest.

Now regarding the current debate, am I missing something or is there not just a simple solution. Holyrood already has the ability to raise income tax by [up to] 3p in the pound, and I am assumung that the revenue has contingency plans in place to cope with this. They must have had so for years now surely?
Why doesn't the SNP go for a double split. Keep the council tax in place, but collect the LIT from everyone who earns through scottish based companies and their payrolls, and then issue them with a council tax rebate equal to their current level to zero that bill. Hence all scottish earners will pay only through the LIT. All others, such as people working through english payrolls, or those on benefits, would pay the current council tax levels in the same manner as now. Therefore since the council tax was still in place the question of the council tax benefit payments to those who need it would remains as it is now.
Is this just me being simple?

  • 52.
  • At 05:44 PM on 11 Mar 2008,
  • Jim Brown wrote:

How is it possibly right in any way shape or form to allow those rich enough to live off savings and investments to pay nothing towards local services. If someone is on 15,000 to 20,000 a year and after taxes, travel costs etc. they are left with little but still contribute to the tax burden but the rich don't. That is a recipe for disaster and does nothing for the working man. There will be all sorts of schemes for the wealthy to receive remuneration in differing forms rather than a straight wage increase. Also how can it be right and proper that two people on the same landing across the hall from each other pay massively differing amounts of a local income tax when they both use the same services and live in the same sized home.

Why bother getting promoted at work when all you will get is a larger tax bill.. Why educate yourself when all you get is a larger slice of the tax burden which you already maintain by paying extra taxes from a better paying job.. This system is unworkable with too many gaping holes and is even less fair than the Poll Tax. Have the SNP even considered the damage they could do with this.

How many sticks of dynamite do you have to set off between an SNP politicians ears until they have a clear and concise policy or thought. We will end up with a tax that benefits only the rich or those with a good accountant or tax lawyer....

  • 53.
  • At 05:50 PM on 11 Mar 2008,
  • Andrew wrote:

Lisa at 1.14 pm

Your income tax is however deducted at source and at present is wholly remitted to HMRC in England.

A wee asterisk against your name or code number could indicate that you live in Scotland, so the appropriate amount of money for your Scottish "Council Tax" is additionally deducted and remitted to HMRC for onward transmission to Scotland.

"Don't bring me problems, bring me solutions".

  • 54.
  • At 06:10 PM on 11 Mar 2008,
  • Peter, Fife wrote:

Whether it is a council tax based as it was on rateable value or a local income tax the reality remains that it should be based on services used; the poll tax was the correct answer although it was introduced by a discredited Government who was not afraid to openly display their inherent bias.

Two four bedroom houses, one occupied by a lone pensioner with a second occupied by two parents (not as uncommon as you are led to believe and three to four offspring, which household uses more water, more road use either public or private transport, more council leisure services, more health services, more benefit services, etc, etc, etc.

Both houses pay the same council tax, with the single pensioner merely offered a single occupancy discount of 25%; this was the situation of two of my neighbours at a previous occupancy where three of the neighbour's children also were working.

  • 55.
  • At 06:35 PM on 11 Mar 2008,
  • agentmancuso wrote:

"it would also mean less annoying tourists from "landon, init?" that buy up said housing stock and contribute nothing to the local community except on their twice annual two-week visits when they complain that the local shop doesn't have their brand of bottled water, and what are all these "funny" banknotes, don't we have any 'real' money?, patronisingly insult the "yokels" and in general make a general nuisance of themselves.
'Course, I may be sounding a little "partisan" there. If you can guess which party I voted for, that is :)."

It's not hard to guess: sub-racist rants are the stock-in-trade of supporters of only one party.

  • 56.
  • At 08:10 PM on 11 Mar 2008,
  • GI wrote:

#23 Stephen. I have to disagree that the burden would be on large employers as they normally at present keep an up to date list of their employee’s home address. Also their payrolls are done electronically on computers so any additional tax based on an employees post code can easily be calculated. The actual burden may well be the small business where two or more local authorities converge. Take a small business in Dundee, they could employ someone from Dundee, Angus, Fife or Perth and Kinross and a small business is more likely to calculate taxes manually.

A LIT is quite feasible and I would prefer it if each local authority set its own rate but this will be the difficult part because they do not know what the income for the people living in their area will be in the coming year so a great deal of thought will have to go into calculating the rate to be used. Perhaps the local authority just informs HMRC of the amount they need to raise for the coming year and HMRC then calculates the percentage based on the last known year’s taxable income.

I also believe that it should be income based and not just earnings based. I have both earnings from my employment and also have taxable company benefits and income in the form of dividends from my investments. Every source of income used for calculating income tax should also be used for calculating LIT.

There are many problems that need to be looked at like what happens when an employee changes address (to a different local authority area) during the year but if everyone works together on this these problems can be solved.

If we go with the proposed SNP 3% over the whole country this would mean some local authorities further subsidising the larger city councils to an even greater extent than at present.

  • 57.
  • At 08:21 PM on 11 Mar 2008,
  • Annoyed wrote:

Mike. I don't hate you. I don't hate Scotland. If I did why would I have ever gotten myself involved. Frankly I think that those living in Scotland should have a fair deal, tax, housing, health care, whatever and if the political Parties in Edinburgh can find a common ground on these issue then great. Would be nice if the same happened down here but maybe we'll just have to wait. One of my best friends is from Falkirk (albeit he lives down here now). I'm only English by culture, I wasn't even born in the UK and most of my attitudes and behaviour revolve around Africa! So it's not an English/Scottish thing with me. I don't hark back through history or try to blame someone. No, what gets me is that there are too many people who post messages on this blog who seem only to find fault in your neighbours. Scotland is not a province of England, but seems to suffer similar ills to some of the English provences. Sure I might live in London but I've been a country boy from the southwest for over thirty years and I don't like what is happening outside the south east anymore than you do.

Lydia Reid - many of your messages are vitriolic, more fish supper on the shoulder than a mere chip methinks, plenty salt 'n' sauce too. In all the years I have lived in Scotland (and even for a stupid sassenach it's quite a few) I've never seen that many folks in kilts or even tartan (which is sort of a shame - obviously lost some national idenity, not that I have a smock-frock) or ever imagined Hadrian's wall to be electrified (it's in Northumbria for a start - English territory remember since what about 800AD?). I'll let the Tories borrow Alex Salmond they'd get on like a house on fire I dare say, so no thanks, but I'm sure he's a lovely man. As for my flat, well she's great and sadly rented out because I ended up working down here.

Here endeth the lesson.

  • 58.
  • At 12:34 PM on 12 Mar 2008,
  • Duncan wrote:

I think those against replacing Council tax need to take a look at what exactly this tax pays for and who pays for these and then ask themselves why a pensioner on say £17k a year living in a decent house should pay 10% of their income after deductions, in Council tax to pay for these services, whilst someone on £50k a year would pay exactly the same for the same services and many pay noything at all despite enjoying all the facilities the Council provide.

Obviously it suits the majority of MSPs to keep the present system and it suits the better off to protect the existing system and you can see them crawling out of the woodwork to make their case.

The truth is that taxation for local services should be paid for centrally - just under 80% of it already is - that way the costs of collection would be minimised and everyone would contribute according to their income.

If you want to punish people for owning property by all means introduce a property tax but don't pretend that it has anything to do with local services. Again it must be linked to peoples income, otherwise you are saying to those on limited income 'you have no right to live in decent conditions, and we are determined to make sure you cannot afford to do so despite the fact you escaped these conditions through the sweat on your brow and/or, the use of your brain.'

Council tax is not just unfair, it is dishonest!

  • 59.
  • At 12:35 PM on 12 Mar 2008,
  • Dave "Boy" wrote:

How would LIT be collected from the self employed? A lot of self employed people pay themselves in the form of dividends rather than income - does this mean that this large group of people will be exempt LIT while the rest of us pay for the local services that they too will use?

The reality is that no-one likes paying tax and so anything is going to be unpopular. Council tax especially so because it's a tax you physically can see yourself paying i.e. it doesn't just come off your wages - you get your take home pay and then have to pay again.

Another question I have is how to calculate Scotland's share of welfare spending. If the £400 million is needed to find this then what system would be in place to reduce or increase this as people's personal circumstances changed?

http://ideasofcivilisation.blogspot.com/
Also, if we accept that Scotland has the right to a percentage share of welfare spending, does that mean there is an upper limit on this too?

Just a thought.

According to today's scotsman Sir Fred Goodwin's council tax is £2338, now that is the same as mine a poor pensioner, does that seem fair to you? He could easily afford to pay more... and let me pay a good deal less. And while we're on tha subject Sir David Murray's council tax is also £2338. Same for him he could easily pay his fair shatre and nmot notice the difference! Talk about it being an unfair tax well there is your evidence.

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