Scottish First Minister Alex Salmond has caused a stir by promising today to persevere with his plans to abolish Council Tax in Scotland and replace it with a 3p in the pound increase in income tax. As far as I’m concerned he’s right. This will probably draw howls of derision from any fellow members of the Labour Party reading this, but the problem here is not that Salmond is proposing it – it’s more why Labour has never got around to doing something similar!

The quote in reply from acting Scottish Labour leader Cathy Jamieson is remarkable: “The SNP’s tax plans will simultaneously make Scotland the highest taxed part of the UK and damage local services. The first minister should stop pretending that he knows better and dump the local income tax now.”

Sorry, but if the local income tax were to raise more money that should improve services (unless, I suppose, Councils just let the cash go to waste). Or if the local income tax raises less money it will mean Scotland is taxed at a lower rate than the rest of the UK. It’s impossible for both parts of Jamieson’s statement to be true.

She also takes no account of the twisted nature of Council Tax (see this entry) where up to 75% of the money spent by poor boroughs comes straight from central government, while in richer areas as little as 20% of cash spent by the council comes from elsewhere – it’s essentially a redistributive mechanism, but not determined by local politicians. A council in a poor town in Scotland would have to raise Council Tax 5% to make a 1% budget increase – hardly the prospect for local progressive politics that Tom Miller argues for.

Then there’s the issue of whether Council Tax is fair or not per se. As far as I’m concerned basing a tax on 1990s hosuing prices is rather twisted, and does not take account of the services the residents are going to need, nor their likely income. So why not instead raise the same cash from income tax instead?

Then there’s the tactical issue. However much Labour (and whatever other politicians) protest, Council Tax is not popular, perhaps even less popular than income tax. So if other parties conspire to block his plans then Salmond can present himself as the guy who argued in favour of fairness and redistribution. Not good tactics from Labour to let him do this even more than he has done to date.

Now I am sure there are practical and administrative downsides to the Salmond plan, and I would prefer it if local councils themselves were levying this tax rather than applying it across Scotland, but from an ideological point of view Labour should support it. Just because the SNP are proposing something doesn’t make it wrong.

7 Comments

  1. Pingback: Is England softening on Local Income Tax? « View from North Britain

  2. It’s not really a ‘local income tax’ at all. It’s a national income tax (I am taking the SNP at their word that Scotland is a nation). This tax will be levied centrally and the money raised will not stay in the areas it is raised from.

    A real local income tax would be levied by local councils, not by Edinburgh. Simon Jenkins has a good critique on why this is fiscal centralisation dressed up as localism. He even argues it could be Alex Salmond’s poll tax moment. We’ll see.

    The bigger question is surely about the balance of taxation among the three broad types: taxes on work (e.g. income tax), taxes on property ownership (e.g. council tax) and taxes on consumption (e.g. VAT). In the UK we are heavily tilted towards taxing work as opposed to taxing land ownership and taxing consumption.

    The lack of serious taxation on property ownership explains a good amount of the crazy UK property bubble. I’ve argued for land taxation more fully elsewhere.

    Taxing consumption has pros and cons, but is most effective when (1) not regressive, e.g. taxing essentials like food and clothing and (2) targets consumption where there are signficant externalities, e.g. taxing gas-guzzling vehicles that contribute disproportionately to climate change.

    My preference would be for a lot less tax on work and a lot more tax on property ownership and consumption, particularly consumption that has negative social impacts that are not part of the price paid by the consumer.

  3. “Why not instead raise the same cash from income tax instead?”

    Because it’s entirely reasonable and right that some of the tax incidence should fall on unearned wealth, rather than solely on earned income. If we had CGT on houses, then council tax would indeed be unfair.

  4. Pretty fair all round Jon. You commented that Council Tax was ‘twisted’ because 75% of the funding for poor burghs was still distributed from the center. I would wait for a bit more of the LIT detail, before breathing a sigh of relief. Central (Scottish) government will probably still retain a premium slice to hand out. For instance, the tax base, per capita, of somewhere like Glasgow, must be a lot lower than neighboring authorities like East Dunbs and East Ren, but the City needs to spend more per head.

  5. First comment – fine. Second one – not sure. I think there’s so much smoke and mirrors with how Council Tax payments are set up and few politicians ever come clean about all of it – whichever side of the debate you are on.

    Essentially it should be a matter of principle – if a council does it, the council should raise the money for it. Same for the Scottish Executive and for Westminster. It’s fiscal federalism, and we’re too far away from it in the UK!

  6. Ph, and on the two bits of CJs staement not sitting together, it’s largely for the reasons I explain in my post; it will damage services in areas where people are too poor to pay, and damage admittedly pampered pockets elsewhere.

    If anywhere needs a local income tax (and I remain to be convinced), It’s England. My feeling is that it would hit Scotland a lot harder, due to the level of catch-up its economy is currently playing with that south of the border…

  7. You’re right, in principle, this is not a bad idea. And Council Tax is rubbish.

    But the effect in reality is also something to consider. Plus the fact that the SNP are using the 3% Scottish Parliament margin for this.

    Surely there is a way of doing these things which is more progressive than either this or Council Tax? What about a land value tax, for instance?

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