Tax Abolition and Service Tax Introduction (Scotland) Bill
The UNISON Scotland Evidence
To the Scottish Parliament Local Government and Transport Committee
UNISON Scotland's largest public sector trade union
representing over 150,000 members. UNISON Scotland welcomes the
opportunity to submit evidence to the Local Government and Transport
Committee. Recent rises in Council Tax bills and forthcoming revaluation
has put local government funding back on the political agenda.
UNISON believes that the plans to replace Council Tax with a Scottish
Service Tax will do nothing to make taxation fairer as claimed.
It would in fact move the burden of taxation from all households
to those in work and would weaken local democracy through the
setting of a national rate. UNISON believes that a property-based
tax is the best way to fund local services. It is a reasonable
indicator of wealth and is simple to collect. It would be more
efficient to fix the current bands and modify the Council Tax
Benefit system than to reorganise local taxation again.
Taxation in the UK
The Scottish Socialist party's proposal for a Service
Tax is based on a belief that taxing income is fairer than a tax
on property. This demonstrates widely held misunderstanding of
the taxation system in the UK. While it is not in dispute that
the richest pay 2% of their income on Council Tax and the poorest
5%, if all of UK taxation is brought together then almost all
income groups pay between 32% and 37% of their incomes on tax.
That does not mean that the system is fair. Taxes such as VAT
have no link what so ever to ability to pay. Property is though
a reasonable proxy for household wealth. Placing more tax on income
rather than property will move more of the cost of local government
onto those in work and will do nothing to increase the share that
the really wealthy pay.
Maintaining a wide base for taxation and placing
tax on different things like property, earnings and spending is
a key way of spreading the burden of taxation across society.
Exempting a form of wealth such as property could in fact increase
rather than decrease inequalities. Property is therefore an important
part of the "taxation basket".
Income Based Taxation
The proposed Scottish Service Tax would shift the
burden onto working families. The current debates around the Council
tax are often focused on a belief that income tax is a better
indicator of ability to pay. While some families do have a higher
gross income than many pensioners do they also have many costs
such as mortgages, rent, childcare and the general costs of food
clothing and heating needed to raise a family. This leaves many
with less disposable income than pensioners who own their properties
out right and have no dependants.
The SSP claim that 86% of Glasgow Council tax payers
would be better off under the Service tax but these figures are
based on an assumption of one earner per household. The SSP's
figures indicate that dual income-households with earning of £43,000
(2 average earners) would be worse off under their proposals.
Like the Poll Tax, that the Council Tax replaced, every earner
in the house would be liable for a service tax. The more workers
in your house the more tax you would pay.
Property Based Taxation
A property tax is difficult to avoid. You cannot
hide your house or its value. You cannot move it abroad or to
a tax shelter. Even those who live abroad and do not pay UK income
tax pay Council Tax on their UK property. Under a Service tax
they would pay nothing and still get their bins emptied.
There is also an obvious link to local government;
you pay a property tax to the area you live for the services in
your area. Property tax is also simple to calculate and collect.
You only need the property band and whether or not one or more
people live there to work out the bill. Service tax would involve
self-assessment for non PAYE groups like pensioners. It would
also make the income tax system more costly to administer, as
all the tax -free allowances would be different.
Currently councils set their own Council Tax rates
and are accountable to local electors for this rate and the value
for money they deliver in terms of local services. The Service
tax rate would be set nationally and so be the same across Scotland,
this would weaken the accountability of local government to its
payers. A national rate would also make more difficult for areas
to pursue their own priorities. Currently only 30 % of those from
lower social classes think they can influence decision making
in their local area this compares to 47% for higher classes. Turnout
at elections is also falling, particularly for local elections.
Removing the link to locally set taxes will further alienate people
from the democratic process.
Property tax is a good form of local taxation, not
only because the link is obvious, you pay it to the council where
your house is but also because it is reasonably stable. Houses
are fixed in place, new ones take time to build and old ones don't
disappear over night. Councils can therefore predict income with
reasonable certainty over long periods of time. Councils can therefore
plan for the long term and vital services have secure funding.
UNISON also believes that the proposals for the
Service Tax give far too little thought to the future of the current
staff involved in administering the Council Tax. To state "No
worker should be made redundant as a result of this bill."
hardly covers the cost and complexity of re-deploying a whole
department, even if such a policy was deliverable without redundancy.
Improving the Council Tax
UNISON does not support the status quo and believes
that a reform of the current system is essential. The current
band system limits how much those with more expensive properties
contribute. A £400,000 household pays three times the rate
of a £40,000 house not ten times. This is why Council Tax
takes up a higher proportion of low incomes than high, not because
it is a property tax. A new banding system is needed particularly
with a wider range of top and bottom bands and a change in the
multiplier rate between bands.
Property values have altered radically since the
original bands were set, regular re-evaluation of the band would
also be required to ensure the system continues to match wealth
Council Tax Benefit
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 across the UK. Although
half of the 4.7 million recipients are pensioners only 65% of
all pensioners and 45% of 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
its relationship with the Tax Credit system. It is therefore no
surprise that one sixth of working age households who are eligible
do not claim.
Gross weekly earnings at
which CTB is 0
Net weekly income after housing
Single under 25
Single 25 or over
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 staring work in the
Households with children start to pay Council Tax
before National Insurance or Income Tax.
UNISON also believes that business rates should
be returned to local control, grant support should be allocated
with the minimum of ring fencing and that their should be a 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 improved to make it more progressive through
revaluation, changes to the banding and Council Tax Benefit reform.
The non-property-based alternatives (Local Income Tax and Service
Tax) are administratively complex and easier for the wealthiest
members of society to avoid. They would not make our tax system
For further information please contact:
Matt Smith, Scottish Secretary
14, West Campbell Street,
Glasgow G2 6RX
Tel 0845 355 0845 Fax 0141 342 2835
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