Swinney has failed to win public confidence for Local Income Tax, and generally seems ambivalent over whether he actually wants it to succeed or not. Perhaps he is waiting for the UK Government to confirm its pre-May refusal to extend Council Tax Benefit if Council Tax is abolished. The resultant funding gap (£381m) could be used as a figleaf for the SNP to scrap the plan, blaming Westminster for forcing the Scottish Government to retain Council Tax. Whatever excuse they use, it has been clear this plan has been unworkable from the start.
I’m all in favour of progressive taxation – however the cause of progressive taxation is better served by a well-thought out tax plan, which certainly isn’t what we have here.
AM2, writing on the Scotsman yesterday, offered an excellent breakdown of just how unworkable LIT is:
"1. Council tax raised £2.131bn in Scotland last year. The SNP’s 3% local income tax plan would only raise around £1.3bn.
2. Council tax benefit, paid by the Treasury as part of a reserved function, pays £381m of the total. If council tax was scrapped the related benefit would also stop. The SNP refuses to accept this.
3. The SNP admits the remaining £450m shortfall, but fails to properly explain how “efficiencies” can close the gap.
4. The total “black hole” is therefore £381m + £450m = £831m. That’s £320 for each of Scotland’s 2.6m taxpayers, effectively killing the idea that the plan could cut taxes.
5. The SNP reportedly claimed that the Institute of Fiscal Studies endorsed its plan. But the IFS report says that if council tax benefit ceased, the total gap “would be around £840 million”.
6. In announcing the plan, the SNP made no mention of water or sewerage charges. Many people assumed that the 3% would include those. In fact they’d need to be paid on top. The SNP website also fails to clarify this.
7. HM Revenue & Customs’ operations aren’t devolved. Holyrood can’t instruct HMRC to assess/collect a local income tax either by direct assessment or PAYE. Would such an expansion of HMRC’s function in Scotland be sanctioned?
8. Neither are there powers to force employers to collect local Scottish taxes through PAYE.
9. The SNP claims that the council tax collection cost is £65m. But that’s including the valuation boards, so water charges would have to be calculated some other way.
10. The SNP claims a £25m collection cost for local income tax. But that wouldn’t include water and sewerage charges or business rates for multiple property owners. Those would have to be collected separately though some alternative system.
11. The SNP claims that its plans have nothing to do with Holyrood's existing power to vary basic rate income tax by up to 3%. But there's no provision in the Scotland Act to alter the rates on other bands as well.
12. The Tories say “nobody believes that it would only be 3%”. The Burt Commission estimated 6.5% or 7.9%, depending on if only the basic rate band could be altered. Following the 2007 budget, the IFS said that a 5% local income tax would be needed to raise the same revenues as the current system.
13. The SNP says: “we will move towards allowing local authorities greater flexibility in setting the local income tax rate.” But are councils allowed to set rates for taxes to be deducted at source from salaries?
14. Iain McMillan, Director of CBI Scotland says: “it is patently obvious that the break-even point at which taxpayers start to pay more in local income tax than they currently pay in council tax is substantially lower than that claimed by the local income tax's proponents.”
Thursday 13 March 2008
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