Current Newsletter
Download current newsletter
SAACT banner saltire
Fighting for a fair system
home
news
news
Response to the Commission on Local Tax Reform
Scottish Political Parties' Policies
SAACThistory
Features.
Burt Committee - our submission
how you can help
Related Sites
Contact SAACT
Response to Scottish Government Consultation
IsItFair for council tax south of the border

SAACT Response to Scottish Government Consultation Document


SUMMARY OF SAACT RESPONSE

We start by saying what SAACT is, and set out our five principles for the replacement of Council Tax by a fair tax more closely related to ability to pay. We then highlight what we see as the most important points as follows:

"We wholeheartedly support the Scottish Government's proposals for a Local Income Tax. We feel that these proposals satisfy our five principles.

We note that many of the questions in the Consultation Document are aimed at individuals, and we have encouraged our supporters to respond individually. However, since SAACT is a broad church, our supporters may have different views on some of the questions asked. As a group we can respond only in general terms, focussing on the main principles.

The most important principle is fairness and ability to pay. Under a flat-rate income-based tax, everyone pays exactly the same percentage of his/her taxable income, whether he/she is a worker, pensioner, student, housewife, unemployed, living alone, living with others, or whatever. We think that this is fair.

Even if it were true that a fair system would be less efficient than an unfair system, we would be prepared to sacrifice some efficiency (within reasonable limits) for the sake of fairness. But we do not believe that this is true. The evidence suggests that Council Tax is very difficult and costly to collect and easy to evade, and that Council Tax Benefit, which is supposed to deal with those who find difficulty in paying Council Tax, does not work fairly, and cannot be made to work fairly. (More details are given on the Home Page of the SAACT Website.)

We would urge all political parties that are opposed to Council Tax to work together to get an income-based tax up and running as soon as possible. All parties should be prepared to compromise on points of individual differences of policy (e.g. whether the tax should be locally or nationally set) in order to achieve this objective. The legislation introducing the tax should not be set in tablets of stone. Refinements can be made as and when possible, or desired."

We then go on to answer the 24 questions asked in the Consultation Document, in so far as we can do so as a group. The more salient points are as follows

We support the concept of a tax-free personal allowance, but we raise some questions about its level, suggesting that possibly it may be fairer to have a higher personal allowance and a corresponding adjustment to the rate of Local Income Tax.

On the appropriate rate of a Local Income Tax (3% or otherwise), we repeat our point that the most important consideration is to get an income-based tax up and running as soon as possible, and we express the hope that the proposals will not founder on arguments about the tax rate.

We express the view that legislation should be framed flexibly, to permit the tax to be set either nationally or locally, according to developments. We say that, as a matter of principle, Local Income Tax should be applied to all forms of income other than interest on modest savings, and that it would be grossly unfair if people with very large amounts of unearned income did not contribute to LIT.

We say that a Local Income Tax should be collected at source, through PAYE where possible, preferably by HM Revenue and Customs, or (as a second choice) by a Scottish Government Collection Agency.

We express the view that a Local Income Tax would have positive economic impacts on Scotland, and express doubts about whether a tax as low as 3% or thereabouts is likely to dissuade entrepreneurs from living in Scotland.

We examine what "local accountability" really means, noting that the Scottish Parliament has taken different decisions from Westminster despite having only limited tax-varying powers (which it has not yet used).

We strongly agree that Scotland should receive from Westminster money equivalent to Council Tax Benefit after the abolition of Council Tax. Scottish taxpayers will still contribute to the costs of Council Tax Benefit (in England and Wales) through national taxes, though Council Tax Benefit will no longer be available to Scottish residents.

We say briefly why we do not favour certain other suggested replacements for Council Tax, such as variable local sales taxes or Land Value Tax.

Finally, we reiterate the view that the most significant factor in the introduction of a Local Income Tax would be its fairness.




"A FAIRER LOCAL TAX FOR SCOTLAND"

RESPONSE FROM SCOTTISH ACTION AGAINST COUNCIL TAX (SAACT)

Website: www.saact.org.uk

INTRODUCTION

Scottish Action Against Council Tax is a non party-political pressure group dedicated to the abolition of the present system of Council Tax. While autonomous, SAACT is affiliated to the UK-wide Isitfair campaign for the replacement of Council Tax by a fair system. Our members are supporters of all political parties and none.

We believe that the Council Tax is grossly unfair and contend that the whole basis of this regressive tax is flawed. No amount of tinkering with the system, aimed at giving it a veneer of fairness for short-term political gain, can be justified. Our fundamental principles which we believe, taken together, should be adopted as the criteria on which the fairness of a replacement tax should be judged are:

  1. Council Tax should be scrapped in favour of a fair system.
  2. The replacement tax must not be based on domestic property value, but should be levied on all residents.
  3. The replacement tax must be based on ability to pay and should contain no regressive elements.
  4. The replacement tax must not disadvantage those whose circumstances are such that they would qualify for Council Tax Benefit under the present system.
  5. The replacement tax should avoid the necessity for means-tested benefits.

OUR RESPONSE

We wholeheartedly support the Scottish Government's proposals for a Local Income Tax. We feel that these proposals satisfy our five principles (with the possible exception of the fourth principle - see our response to Question 1)

We note that many of the questions in the Consultation Document are aimed at individuals, and we have encouraged our supporters to respond individually. However, since SAACT is a broad church, our supporters may have different views on some of the questions asked. As a group we can respond only in general terms, focussing on the main principles.

The most important principles are fairness and ability to pay. Under a flat-rate income-based tax, everyone pays exactly the same percentage of his/her taxable income, whether he/she is a worker, pensioner, student, housewife, unemployed, living alone, living with others, or whatever. We think that this is fair.

Even if it were true that a fair system would be less efficient than an unfair system, we would be prepared to sacrifice some efficiency (within reasonable limits) for the sake of fairness. But we do not believe that this is true. The evidence suggests that Council Tax is very difficult and costly to collect and easy to evade, and that Council Tax Benefit, which is supposed to deal with those who find difficulty in paying Council Tax, does not work fairly, and cannot be made to work fairly. (More details are given on the Home Page of the SAACT Website.)

We would urge all political parties that are opposed to Council Tax to work together to get an income-based tax up and running as soon as possible. All parties should be prepared to compromise on points of individual differences of policy (e.g. whether the tax should be locally or nationally set) in order to achieve this objective. The legislation introducing the tax should not be set in tablets of stone. Refinements can be made as and when possible, or desired. We appreciate that the establishment of a local income tax will be an evolving exercise, and that, given flexible legislation, any anomalies not initially resolved can be ironed out later.

We answer the 24 Questions in the Consultation Document as far as we can do so as a group, and we append the Response Form with the appropriate boxes ticked.


Question 1: In your view, should the local income tax personal allowance be the same, higher or lower than the UK income tax personal allowance?

We support the concept of a tax-free personal allowance, and we note the view of the Consultative Document that there would be administrative advantages in having the same rate of personal allowance for Local Income Tax as for National Income Tax. However, other considerations persuade us to argue for a higher allowance for Local Income Tax.

First, we have a question concerning people in the lower income deciles. It appears (Annex F, Chart 1) that some households in income deciles 1-5 would be worse off under the proposals. Why is this? If the reason is, for example, that they live in Band A houses in Council areas with low rates of Council Tax, it is not necessarily unfair that they would pay slightly more under a Local Income Tax. But if it is due to the fact that Council Tax Benefit will no longer be available to them, we ask whether the proposed system is being really fair to those on very low incomes.

We feel that there is some ambiguity in the term "personal allowance" as used in the Consultative Document. We understand that the Scottish Government's intention is to interpret "tax-free personal allowance" as an individual's total tax-free income tax allowance, and that this interpretation would include the fruits of income tax avoidance through the exploitation of weak national legislation which allows legal tax-avoidance loopholes for the wealthy. As far as national income tax is concerned, this amounts, at present, to additional income for the wealthy and their tax lawyers and accountants - all at the expense of the general tax-paying public. This practice should not be permitted by the Scottish Government when applied to local income tax.

We propose that ALL individuals should have the same index-linked LIT tax-free allowance, and that this allowance should be set no lower than the tax-free personal allowance which applies to those aged over 75. The LIT rate should then be set to yield the required revenue. For example, if the tax-free allowance for everyone was set at £9,180, then the LIT rate might be raised from 3% to 3.5%. The break-even gross income for this suggestion and the Consultation Document proposal is £31,650: in both cases this would yield a LIT of £786.45. The LIT allowance of £9,180 would give a level-playing field between pensioners and non-pensioners, which is surely justified in a fair LIT.

Since a LIT system for Scotland would inevitably involve an additional HMRC code in order to identify those domiciled in Scotland, we do not see a significant further difficulty in our proposal. In fact, our proposal would simplify the tax system by eliminating the necessity for variable tax allowances for LIT purposes. Almost all employers now use computerised systems for the calculation of income tax liabilities, and employers would have no significant additional effort or expense in coping with two tax allowances (national and local) for employees. This would be no more difficult than applying two or more tax rates (which they are already accustomed to implementing).

To summarise, the proposed approach would have the following advantages:

  1. The avoidance of the anomalies and consequent criticisms resulting from increased taxation burdens on some lower income households, and on some individuals on low incomes such as some students.
  2. Simplicity, with everyone having the same tax coding for LIT.
  3. Elimination, for LIT, of many legal loopholes which allow the avoidance of national income tax.
  4. The application of the principle of ability to pay would be more valid.

Question 2: Do you think that a flat rate of 3% is too high, too low or about right?

We believe that the most important consideration is to get an income-based tax up and running as soon as possible. The legislation should be flexible enough to permit variations as and when required, or desired. We would not wish the proposals to founder on arguments about the rate of tax - for example if Westminster remains intransigent about transferring an amount equivalent to Council Tax Benefit to the Scottish Government. The rate of LIT would have to be very high before a majority of people were worse off.

If, of course, the tax-free allowance were set as we suggest in our response to Question 1, then the tax rate for LIT would also have to be adjusted accordingly. But we consider that this would be fair.

We note that the Scottish Parliament is at present empowered to vary the BASIC rate of NATIONAL income tax by 3% (upwards or downwards) - the "Scottish Variable Rate". It is confusing that the 3% rate suggested for LOCAL Income Tax is the same as the 3% Scottish Variable Rate - though Annex D confirms that they are quite distinct.

We did wonder whether the 3% Scottish Variable Rate was seen as a "fall-back" position in the event that difficulties arose with introducing a Local Income Tax, through Westminster intransigence or otherwise. The "fall-back" position would be that the Scottish Government would implement the Scottish Variable Rate, and use this revenue to increase the amount of money that is awarded to Councils in the way of central government grants, so that 100% of Council expenditure (instead of the present 80% on average) was centrally funded. But, since the 3% Scottish Variable Rate can be levied on BASIC rate income tax only, it would seem that the revenue generated would not be sufficient to replace the revenue generated by Council Tax.

There would be other possibilities, for example:

  1. Seek an amendment to the Scotland Act, so that the Scottish Variable Rate could be applied to the Higher as well as the Basic rate of taxation. (and to unearned income)
  2. Seek an amendment to the Scotland Act, so that the Scottish Variable Rate was raised to (plus or minus) - say - 6%.

Question 3: Would you be inclined to pay more Local Income Tax (i.e. above 3%) to provide for better quality local services?

This question is appropriate for personal responses only.


Question 4: Do you believe that the level should be set nationally or locally?

Our supporters may have different views on whether the level of LIT should be set nationally or locally. As a group, we believe that the most important consideration is to get an income-based tax up and running as soon as possible. If it is easier to set up a nationally-set tax in the first instance, we would be happy with that - and we would urge those (like the Liberal Democrats) who prefer a locally-set tax to accept a nationally set tax initially. The legislation should be framed so that the tax may be set either nationally or locally - for example, if there is a change of government.

We do not understand why it should be so difficult to collect 32 different rates of tax. In these days of computers, this would seem to us to be a fairly simple exercise of matching National Insurance numbers and residential postcodes. In any case, we doubt whether in practice there would be 32 different rates of LIT. We are, after all, speaking of variations within a LIT rate ranging from, say, 2.5% to 4.5%. It seems to us far more likely that several Councils would opt to have the same rate of LIT. There might be, say, 8 different LIT rates rather than 32.

We think that Scottish Ministers should have the right to cap tax rates set locally, but we would be disappointed if these powers had to be used. The pressures for high Council Taxes (in England) often come from inadequate levels of central government grants. Further, Local Income Tax would be payable by a higher percentage of the electorate, and this fact should make Councils more accountable to their electorate.


Question 5: Among the following, which should or should not be taxed as part of Local Income Tax (Income from Wages, Pensions, Savings, Financial Investments, Second Homes)?

As a matter of principle, we feel that Local Income Tax should apply to all forms of income - including savings and investment income. Those with modest savings are protected by the tax-free personal allowance, and they can put modest amounts into tax-free savings vehicles such as ISAs and Index-Linked Savings Certificates. If the personal allowance were increased as we suggest in our response to Question 1, this would afford even more protection to those with modest savings.

We note the point that the cost of collecting LIT on savings and investment income may be more expensive than the amount of money raised. However, we think that it would be grossly unfair if people with very large amounts of unearned income were to be called upon to pay no LIT on it. Those whose income falls into the higher taxation band and who make annual income tax returns to Her Majesty's Revenue and Customs (HMRC) are already required to pay the difference between higher and basic rate tax for the appropriate amounts of savings interest and investment income. Why should not their higher taxation charges include LIT? HMRC would, of course, be fully aware of all those domiciled in Scotland in order to implement the basic requirements of the LIT system. This measure may not yield a very large proportion of the total required revenue, but it would not be costly to implement, and would lend a significant contribution of perceived fairness to the LIT system.

We do not think that a tax as low as 3% (or thereabouts) would be a major disincentive to savings and investment.


Question 6: In your view, do you think that there should be any special exemptions or discounts from a local income tax?

No.


Question 7: Do you agree that a Scottish taxpayer should be defined using the definition already contained in the Scotland Act, described at Paragraph 19 above?

We have no strong views on this question, and would be happy with the definition already contained in the Scotland Act. We would consider it slightly preferable to link local income tax to the proportion of the year that a person lives in Scotland, but only if this can be done without undue expenditure or bureaucracy, and only if we could be sure that this definition would not be abused as a means of avoiding local taxation. We would have thought that computerised systems would make this linking a relatively simple exercise.


Question 8: In your view, should transitional arrangements for individuals apply?

No. Apart from the principle of fairness, we are speaking of a tax rate of only 3% or thereabouts. This is unlikely to be a major problem for those who would pay more, as these would be among the better-off members of the community.


Question 9: Which of the following do you think should collect a Local Income Tax (HM Revenue and Customs, a Scottish Government Collection Agency, a Private Sector Collection Agency, Local Authorities)?

Preferably a Local Income Tax should be collected by HM Revenue and Customs. If HMRC cannot (or are not allowed to) cooperate, the second choice would be a Scottish Government Collection Agency.


Question 10: Do you think that a Local Income Tax should be collected at source or through payment?

Local Income Tax should be collected at source, through PAYE where possible.

The present method of paying Council Tax is one reason for the poor collection rates. However, failure to pay Council Tax is not always (or perhaps even usually) due to deliberate evasion. Many people find genuine difficulty in paying Council Tax. A fairer tax, related to ability to pay, should result in higher collection rates, especially if it is collected at source as far as possible.

Some people who are not on PAYE might try to evade LIT. But more resources could be concentrated on collecting unpaid LIT if these resources were not wasted on futile attempts to collect Council Tax.


Question 11: If the Government were to offer support to employers to implement these proposals, which would be the most appropriate medium of support in your view?

We think that the Government should offer to support employers by providing appropriate computer payroll programs free of charge. These programs could be of a global nature applying to all employers.


Question 12: In your opinion, will the introduction of a local income tax have positive economic impacts on Scotland?

Yes. We feel that a fair tax, set at 3% or thereabouts, would encourage people to contribute to the Scottish economy, and that a tax at this level would not discourage high earners.


Question 13: To what extent would the tax rate influence your decision to live in Scotland?

We think that a fair local income tax would have a positive influence on people's decisions to live in Scotland. Most people would be better off. While some high earners would pay more in Local Income Tax than in Council Tax, we think it unlikely that a tax as low as 3% or thereabouts would be a significant disincentive to live in Scotland.


Question 14: To what extent do you agree with the following statements about the impact that a local income tax might have on your working patterns? [working fewer or more hours, working in a different location or sector etc.]

While this question is appropriate mainly for personal responses, we feel that a tax as low as 3% or thereabouts would have very little influence on people's working patterns.


Question 15 and Question 16

Question 15: On a scale of 1-5, where 1 is strongly agree and 5 is strongly disagree, how important is it that your local authority has the power to set a tax? Question 16: Please provide any comments that you may have about local income tax and accountability and democracy.

Again, our supporters may have different views on these two questions. We would make the following general observations. We need to look closely at what local accountability actually means. Councils have relatively limited freedom over how they spend their budgets: much of what they do is prescribed by mandatory, central government requirements. For example, teachers' salaries - a major item of Councils' expenditure - are, quite rightly, set nationally, not locally. Indeed, Councils argue that one reason for the disproportionate increases in Council Tax - aggravated by the "gearing" effect - is that central government is requiring Councils to do more and more, but not giving them sufficient extra funds for these additional responsibilities.

It is at least arguable that local accountability should come, not from how Councils RAISE their money, but from the electorate's judgment of the efficiency with which they USE their money. Allocation of funds to Councils from a centrally-collected tax does not mean that there would be no local input to decision-making - for example, on the replacement of school buildings. And Councils could be allocated a certain amount for genuinely local projects, which they could include in annual budgetary bids to the Scottish Government.

Comparison may be made with the Scottish Parliament. The Scottish Parliament has only limited tax-raising powers, and has in fact so far declined to use even the limited powers which it does have. Yet it has taken a different line from Westminster on many matters; and, where these provisions have had cost implications, Parliament has found the money from its existing, centrally-allocated budget.

It is worth noting that the Burt Committee appears to agree with these observations. (Burt Report, Section 6)

On the general question of Councils' accountability to their electorate, more people will pay LIT than Council Tax; and so presumably more people would have the incentive to vote, in order to hold their Councils to account for their decisions. The view has been expressed that local accountability operates only at the time of elections.


Question 17: If you have any specific comment on the impact of our proposals on equality issues, please tell us what these are.

A progressive local taxation system, such as LIT, should significantly contribute to the enhancement of equality by improving the prosperity of households with lower incomes (in particular in terms of day-to-day cash availability).


Question 18 : Do you feel that the money raised from a Local Income Tax should be distributed to Councils according to Need; Population in each Area; The amount of Local Income Tax Raised in each Area; Other.

Clearly areas with greater need require more financial support than others. The appropriate mechanism for addressing issues of need, however, may be adjustment of the amount of central government grants awarded to Councils, rather than the distribution of Local Income Tax as such. After all, Council Tax accounts for only about 20% of Council expenditure, and presumably Local Income Tax would account for not more than that percentage.

However, enhanced quality of life can be achieved, to some extent, through improvements to local amenities and services. We would argue that these amenities and services constitute another form of need which is not at present adequately addressed by the block grants referred to in the previous paragraph, but the fulfilment of which depends on the discretionary element within local authority legitimate budget expenditure, which in turn is largely met from local taxation. Thus, we feel that the disbursement of LIT should be with this additional form of need in mind. If, however, Local Income Tax is locally set, Councils which decide to raise tax a little above the average, in order to fund genuinely local projects, should not have their central government grants reduced on that account.


Question 19: To what extent do you agree that Scotland should receive equivalent monies to Council Tax Benefit, after the abolition of Council Tax (where 1 is strongly agree and 5 is strongly disagree)?

Number 1 - strongly agree. Scottish taxpayers will continue to contribute to the costs of Council Tax Benefit ( for claimants resident in England and Wales) through the national taxes which they pay to Westminster, although Scottish residents will no longer qualify for Council Tax Benefit. It would be impractical to adjust the rates of national income tax, VAT and all other national taxes paid by Scots to compensate them for the loss of this benefit: the obvious way is to pay an equivalent sum to the Scottish Government for distribution to Councils by way of additional grant.


Question 20: To what extent do you agree that local authorities should play a part in setting a second homes tax (where 1 is strongly agree and 5 strongly disagree)?

We would answer "1" to this question. We appreciate that some local authorities may wish to discourage second homes (because they make it more difficult for local people to find affordable housing), whereas in other areas there may be no housing shortage, and visiting owners (or tenants) might benefit the area.


Question 21: To what extent do you feel that second homes tax should be collected by HM Revenue and Customs, a Scottish Government Collection Agency, a Private Sector Collection Agency, Local Authorities?

We would tick "1" for local authorities and "5" for the other bodies. That is, we consider that the collection of tax on second homes and long term empty properties should be made by local authorities through the existing system used for the collection of non-domestic rates.


Question 22: Which do you feel is the fairest approach to taxation?

We consider that Local Income Tax is the fairest approach to taxation for local government expenditure that is within the present powers of the Scottish Government. We would be glad to consider alternative approaches, but so far we have seen none that satisfy our five principles.

Fair taxation probably depends on an appropriate mix of national and local taxes. We believe that most other taxes (sales taxes such as VAT and excise duties, Capital Gains Tax, Inheritance Tax, etc) are more appropriate for national taxes. Only Local Income Tax is a fair and workable system for local taxes.

One alternative approach would be to fund local government expenditure entirely from central government grants, and to pay for the additional expenditure by increases in some or all national taxes. About 80% of local authority expenditure is already centrally funded - why not 100%? As is pointed out in paragraph 37 of the Consultative Document and echoed in our response to Question 16, there is no necessary connection between local accountability and tax-raising powers. We appreciate, however, that the Scottish Government has only limited powers to implement such a proposal at present.

Apart from the regressive nature of sales taxes, a variable local sales tax is a non-starter. If petrol were significantly cheaper in Bearsden than in Glasgow, then west-end Glasgow motorists would simply nip over the border to fill up their tanks - good for the motorists, but not so good for Glasgow filling stations or for Glasgow City Council.

There might be arguments for a Land Value Tax applied to land occupied by non-domestic occupants, such as businesses. But, for ordinary residents, Land Value Tax seems to us open to the same fundamental objections as Council Tax - namely, that the value of your land may bear no more relation to your income (or other disposable assets) than the value of your house. The value of your land does not pay your Land Value Tax for you: most of us would in fact have to pay this tax from our incomes. Moreover, tenants would have to pay this tax as well as landowners.

So perhaps there is an argument for applying Land Value Tax to land occupied by non-domestic occupants. Would the Scottish Green Party accept an LVT applied to non-domestic land, in return for support for a Local Income Tax for ordinary residents?

We note that Councils may be called upon to play a part in protecting the environment, but we do not believe that local environmental taxes could or should be a major source of local government funding.


Question 23: Which approach do you feel will provide a more wealthy Scotland?

Local Income Tax


Question 24: If a Local Income Tax is introduced, what would be the most significant factor for you?

That a Local Income Tax would be fairer than the Council Tax.



Appendix - Response Form

We would tick the boxes in the Response Form as follows:

Question 1: Higher

Question 2: Too low

Question 3: Left Blank (This question is appropriate for personal responses only.)

Question 4: Left Blank (See comments in our main response.)

Question 5: All boxes ticked "Yes"

Question 6: No

Question 7: Yes

Question 8: No

Question 9: Her Majesty's Revenue and Customs (HMRC)

Question 10: Collected at source

Question 11: Left Blank (See comments in our main response.)

Question 12: Yes

Question 13: Not at all

Question 14: Left Blank (See comments in our main response.)

Question 15: Box 3

Question 16: (No boxes to tick - see comments in our main response.)

Question 17: (No boxes to tick - see comments in our main response.)

Question 18: Need

Question 19: Box 1

Question 20: Box 1

Question 21: Box 1 for Local Authorities and Box 5 for the others.

Question 22: Local Income Tax

Question 23: Local Income Tax

Question 24: That a Local Income Tax system would be fairer than the Council Tax.



RESPONDENT INFORMATION FORM

1 Name / Organisation

Organisation Name: Scottish Action Against Council Tax (SAACT)

Title: Mr
Surname: White
Forename: Archie

2 Postal Address

63 Hallydown Drive
Jordanhill
GLASGOW
G13 1UG

Phone: 0141 954 4656 Email: saact@tiscali.co.uk

3 Permissions

I am responding as ... a Group/Organisation

(c) Are you content for your response to be made available? YES

(d) Are you content for the Scottish Government to contact you again in relation to this consultation exercise? YES







Copyright © 2011 Scottish Action Against Council Tax
Although the SAACT Website is copyright, readers may freely quote from it without requesting permission, provided that due acknowledgement is made to SAACT.