to Local Income Tax Consultation Paying for Local Government
Briefing No 189 September 2008
The Scottish Government have announced that they
will move ahead with their plan to introduce an extra tax on wages
to replace the council tax in Scotland. While the government has
not yet published the responses to the consultation, a wide range
of organisations has highlighted problems with the tax. This briefing
gives an overview of available responses. For
background information see P&I briefing 180 and UNISON's
response to the proposal.
A general theme is that the consultation did not
contain enough detail to enable full analysis. Chartered Institute
of Public Finance and Accountancy (CIPFA) & Society of Local
Authority Chief Executives (SOLACE) in particular focused on the
lack of detail on how the tax would be collected. This meant it
was impossible to comment on cost effectiveness in any detail.
A key concern for UNISON is that the tax will not
collect sufficient money to deliver public services at the current
level, far less improve them. The government's own estimate is
a £280 million shortfall. The treasury states £750 million, similar
to the figure in the SOLACE & CIPFA responses. Royal Institute
of Chartered Surveyors (RICS) states that the current tax proposal
would only raise 40% of the current tax revenue. This will lead
to cuts in services, increased charges for those services that
remain and of course cuts in public sector jobs.
Even CBI, a supporter of tax cuts, is concerned
about the threat to public sector finances. They calculate that
the money that the government proposes to use to top up local
authorities could be used to reduce council tax by 15%. They,
like UNISON, point out that is not new money and ask what other
budgets will be cut to make this £280 million available.
The government, like UNISON, believes that taxation
should be fair and based on ability to pay. But ability to pay
is not just what your wages are. Ability to pay is complex. Taxation
requires a system of allowances and disregards to ensure fairness.
It also needs all forms of wealth, not just wages, to be taxed.
It cannot be one size fits all. If for example you have children,
other caring responsibilities or a disability then a fair system
makes allowance for that. Citizens Advice Scotland (CAS) and the
Royal Institute of Chartered Accountants (RICS) and the Law Society
in Scotland all raised the issue that many families in receipt
of tax credits will be paying this extra tax and there is no plan
to protect them. The Low Incomes Tax Reform Group (LITRG) states
that low income groups, including pensioners, who have incomes
from more than one source are often given the wrong tax code,
especially if they have more than one job. They then end up paying
too much tax. The extra income tax will make this worse. The new
tax will add to the tangle of taxation and benefits they are already
Carers Scotland state that carers will lose out
under the tax plan as it does not take into account their current
protection under council tax. Carers can still get all or a proportion
of single persons' discount. Carers' allowance is a taxable benefit,
therefore liable to the tax, unless an exemption is made. The
same will be true for other taxable benefits. The tax also takes
no account of the high costs of caring for those carers who are
in work. They are concerned that this tax will be a further disincentive
to work for carers who already face multiple barriers to work.
The NUS states that the plan does not exempt students
unlike the council tax. Students from low-income families will
be hit hardest: they work the longest hours as their parents are
less able to give them financial support. Young workers who live
in with their parents will find they also have to pay.
CAS, CBI Scotland, CIPFA & SOLACE all highlight
the omission of any plans to deal with water and sewerage charges.
The proposal offers nothing to tackle the difficulties people
on low incomes have in paying these charges, nor a way to collect
the money without council tax. CIPFA and SOLACE, ICAS, the Law
Society of Scotland, and STUC all point out that exempting investment
income and other forms of wealth from the new tax means that the
wealthy will pay less tax and this is unfair. Even the PCS and
the Scottish Action Against the Council Tax who support the government's
plan believe it is not fair to exempt investments and savings
income from the tax.
The Institute of Revenues, Rating and Valuation
(IRRV) and LITRG emphasise how complex collecting income tax is.
It is not just a case of "flicking a switch on a computer".
They believe there would need to be a register of Scottish residents
in order to know who to tax. RICS ask how non-Scottish employers
will deal with a tax on Scottish-only staff. Who will check if
address is correct? IRRV state that property taxes are efficient
and effective. 37 out of 39 European administrations use them.
SOLACE & CIPFA state that collection would cost HMRC in the
range of £12 to £26 million annually. They also quote the figure
from the Burt Report of £17 to £28 million in costs to employers
to collect the tax. CBI say it may be difficult to get staff to
transfer to Scotland particularly for shorter postings and that
it may lead to claims for a Scottish weighting. They claim this
will be complex and open to fraud. Council tax has very high collection
rates. SOLACE & CIPFA state council tax collection rates of
at least 98% and collection costs at less than 2% of yield. The
CBI asks what wages would be taxable: Is it gross wages? Is it
after pension contributions? Is it after charitable giving? What
about wages in other forms: store vouchers, child-care vouchers
or company cars? If these are not taxable will people start to
move to these to avoid tax? Will they take shares instead? CBI
complains of moving the costs of collection on to business, but
they are not the only employers: public and third sector employers
will also have to bear the burden of these costs.
Property based taxation
UNISON remains convinced that taxing property is
fair and cost effective despite the consultaion not offering this
as a route forward. There is in fact widespread support across
the polictical spectrum to fix the real problems with the current
local tax regime. Scotland could move quickly and effectively
to a real solution before any more time is wasted on an additional
tax on wages
@ The P&I Team
14 West Campbell St
Tel 0845 355 0845
Fax 0141-307 2572
UNISON response to the consultation
UNISON briefing 180 on the consultation
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