Local government in Scotland is funded mainly by
central government, 20% of income is raised locally via the Council
Tax. Recent rises in Council Tax bills and forthcoming revaluation
have put Local Government funding back on the political agenda.
Council Tax was introduced in 1993 as an alternative to the Poll
Tax. This was levied on individuals leaving many households with
huge bills. As a result of the outcry caused by this local government
funding returned to a property based tax. The Council Tax rate
is based on the value of a household's property, as this is a
reasonable but by no means perfect indicator of household wealth.
Council Tax Benefit was also introduced to support low-income
No taxes are popular and high profile anti-tax campaigns
are vote winners. Since its inception Council Tax bills almost
doubled in while earnings have risen by half in this period and
other prices have risen by one third. In Scotland the Liberal
Democrats SSP and SNP are now committed to abolishing Council
Tax in favour of differing forms of tax on individual incomes.
They claim this would be fairer. UNISON while not in favour of
the status quo is in favour of a property based locally collected
Anti Council Tax Campaigns
Council tax bills almost doubled in while other
prices have risen by one third. This means the rises stand out.
Unlike other taxes the council tax is physically paid. Income
Tax comes off wages before you get them and VAT is not openly
stated on most shopping. It doesn't "feel" like you
are paying tax. Recently pensioners who have valuable properties
but fixed incomes have been vociferous in their complaints and
pushing for an income rather that property value tax. In essence
they want to move the burden of paying for local services from
themselves onto those in work.
Current bills are based on a property's value in
1991 so worries about forthcoming revaluation of bands where many
properties will have increased substantially in value have increased
pressure to change the Council Tax. Anti Council Tax campaigners
have campaigned strongly on the issue that Council Tax is not
as fair. The current banding system limits how much those with
very expensive properties have to pay. £400K house pays three
times as much as a £40K house not ten times. UNISON agrees that
the banding system needs to change to take account of both changes
in the house prices and particularly to ensure more bands at the
top and bottom of the scale. Richest fifth of non-retired households
pay 2% of their gross income on Council Tax the poorest fifth
pay 5%. Changes to a local income or service tax will not redress
this balance. Moving to more income tax will only place more of
the tax burden on already hard pushed working families.
Whilst property value is not a faultless indicator
of wealth or ability to pay, research shows that there is a broad
link. UNISON believes that a property tax is an important part
of the 'taxation basket'. It is particularly suited to local government
funding, as the link is obvious. Houses are fixed in place and
so are a form of wealth that cannot be hidden or moved abroad.
This makes council tax easy to collect. The only information required
is address, band that property is in and number of adults in the
property. Because property is fixed in place Local Authorities
have a good idea about long term Council Tax income and so can
have reasonable confidence in future budgeting. Scotland is a
small country that has pressure on space in certain areas and
related housing problems. Encouraging over-consumption of housing
by leaving it, as one of the few wholly untaxed items of consumption
is not desirable. Almost everything else is taxed why should housing
be exempt. It should also be noted that income is also only an
indicator of ability to pay. The costs of bringing up children,
caring elderly relatives, or paying a mortgage or rent on a house,
mean that some pensioners who own their houses outright and only
have themselves to keep have higher disposable income.
Abolishing the Council Tax would be the third major
reform of local government funding in 20 years and would cause
massive upheaval. Reorganisation would divert resources and focus
away from delivering essential services.
Council Tax Reform
In order to address concerns about the Council Tax
Council Tax Benefit needs overhauled. CTB, like all means
tested benefits, is not always claimed by or available to those
it is intended to protect. It is estimated that there is £ 1.2
billion in unclaimed council tax benefit. Although half of the
4.7 million recipients are pensioners only 65% for all pensioners
and 45% among owner-occupier pensioners are actually claiming.
They are losing on average £7.60 per week.
While much of the publicity has centred round pensioners
the CTB system actually hits working families the hardest. Many
low paid workers have to pay full Council Tax. Just under half
the children living in poverty live in households not entitled
to CTB. The table below shows just little those paying full Council
Tax can earn. The table also shows how complex the system is particularly
it relationship with the Tax Credit system. It is therefore no
surprise that one sixth of working age households who are eligible
do not claim.
Even for those who do claim the cut off rate is
really steep: On earnings over £60 per week CTB falls by about
20p for every pound earned. This can put people off changing to
better paid jobs, doing over time or even start work in the first
Households with children start to pay Council Tax
before National Insurance or Income Tax.
Gross weekly earnings at which CTB is 0
Net weekly income after housing costs
Single under 25
Single 25 or over
Reform of the bands
The Council Tax banding system needs reform. The
system limits how much those with very expensive properties have
to pay. £400K house pays three times as much as a £40K house not
ten times. This means that like VAT it takes up a bigger proportion
of low incomes than high. Richest fifth of non-retired households
pay 2% of their gross income on council tax the poorest 20% pay
5%. A new banding system is needed to reflect the range of property
values in Scotland.
Anti Council Tax campaigns have gathered momentum
because they appeal to the public belief that a tax system should
be fair. There is evidence that people don't really understand
the tax system in UK. 8% believe that those on higher incomes
pay a much larger share of income tax than those with lower
incomes. 56% thought they pay a larger share. (They also thought
this how it should be). In fact when you combine tax on income
and tax on spending almost all income groups pay between 32% and
37% of income on tax. Only the bottom 10% is different and they
pay 53% of their income on tax.
Wealth inequality is rising. Now top 1% hold 23%
of total personal wealth and top 10% now hold 56%. Market income
other that wages and salaries is mainly investment income. Top
10% of working age population received 4% of their income from
investment compared to under 1% for the lowest 10%. Taxing property
contrary to the claims of anti Council tax campaigns can be an
effective tool in reducing these inequalities.
Local Income Tax
The Liberal Democrats, SNP and SSP are all campaigning
to move to a form of Local Income Tax. They claim this will be
fairer. They claim that it will move the burden of paying from
local government to the wealthy. UNISON believes that this will
in fact move the burden to working families leaving many wealthy
people no longer contributing. Only 60% of people in the UK pay
income tax and so 40% of people would be exempt from paying for
local council services.
Income is also only an indicator of ability to
pay: the costs of bringing up children, paying a mortgage on a
house caring for others mean that many on lower incomes have higher
disposable incomes that those with higher gross incomes.
No taxes are popular but in order to fund our public
services most people are willing to pay them, What is important
is that taxes are fair ,hard to avoid and simple to collect. Currently
in Britain we have different types of tax, on earnings, property
on spending, on business. Moves away from taxing property to earning
place more of the tax burden on hard working families not to the
Like the Poll Tax every adult in the house will
be paying tax on their earnings rather than one charge per household.
So even those on average earnings could pay more under local income
tax schemes if there are two (or more) full time workers in the
Local government setting its own tax rate is a crucial
part of local democracy. The Service Tax proposed by the SSP will
break the link between those who use and pay for public services
locally and their councillors. Only 30% of those from a low social
class think they can influence decisions in their area at present
compared to 47 % for higher classes. (ODPM 2001). It is more important
than ever not to make less accountable to local people.
Because property is fixed in place Local Government
can predict income over the long term. This also protects local
democracy allowing long term planning and secure funding for vital
UNISON Principles for Local Taxation
Local authorities should raise and control revenue,
maximising its autonomy and freedom from central control.
The Council Tax should be reformed including regular
revaluation and by amending the banding structure.
Council Tax Benefit should be reformed.
Business rates should be returned to local authority
Grant support should be allocated with minimum ring
Level playing field between local authority borrowing
and private finance.
In summary UNISON believes that the Council Tax
provides a stable yield for local councils at low administrative
cost. It should be reformed to make it more progressive through
revaluation and changes to the banding. The non-property-based
alternatives (Local Income Tax) are administratively complex and
easier for the wealthiest members of society to avoid. They would
not make our tax system fairer
How would local income taxes affect you?
The following examples show how public sector workers
will be hit by a move to local income tax. The figures are based
on the Lib Dem plan. But the SSP and SNP plans have similar outcomes.
The Lib Dems propose a LIT rate of 3.75%, this rate assumes income
from a 50% tax rate for top earners. The Scottish Executive has
no powers to introduce this rate. The SNP plan allows councils
to set the rate locally. Their proposals indicate that Glasgow
would have to charge 4.8%. Assuming the families below pay average
Council Tax (in Scotland £1094) Figures are for a year's bill.
Newly registered nurse (£16525) and a council auditor
(£27000) £171 worse off per year
Newly qualified teacher ( starting salary £21588) and
Community Education Worker (£19803) on average worse
of by about £90 per year
Ward manager (£23110) and Sport Development Officer (£21000)
£193 worse off per year
Sharing houses will no longer be so attractive for
young workers as each individual rather than the household will
2 newly qualified teachers (£21588) and a newly registered
nurse (£16525) would be £594 worse off per year
Families on low incomes will also suffer if their
children stay at home once they start work.
Call centre team coach (£16500)
Experienced cook (£13500)
Personnel Assistant (£14872)
Apprentice plumber £7778)
£146 worse of under per yearLiberal Democrats
Local income tax
Recycling operator (£14220)
Residential worker (£15722)
Under 21 minimum wage (£9330)
£45 worse off per year
Students earning more than £5.50 per hour for a 20 hour
week would pay £31more per year
Some people may consider a household income of £50
000 to be mega-rich but really rich can move their wealth about
to avoid paying their share. Many choose to live abroad for long
periods to avoid paying income tax. They still pay Council Tax
on their UK homes. Under a local Income Tax or a Service Tax the
super rich could pay nothing yet still expect their bins emptied.
As well as the costs and disruption of any changeover
there will be the added problem of elderly and infirm pensioners
having to do self assessment for their tax bills.
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