Council Tax Abolition and Service Tax Introduction (Scotland) Bill

September 2005

Introduction

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.

Democracy

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.

Stability

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 with bills.

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.

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 first place.

Households with children start to pay Council Tax before National Insurance or Income Tax.

Business Rates

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.

Conclusion

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 fairer

For further information please contact:

Matt Smith, Scottish Secretary
UNISON Scotland
UNISON House
14, West Campbell Street,
Glasgow G2 6RX
Tel 0845 355 0845 Fax 0141 342 2835

e-mail matt.smith@unison.co.uk