Reprinted from Scots and Independent

hursday, September 04, 2008
The Scotsman And LIT
As promised, here's the rebuttal to the Scotsman's continued vendetta against Local Income Tax. Anyone would think their editor might be in danger of paying a bit more or something the way they carry on...


1. Local income tax (LIT) will leave a £750 million financial black hole in Scotland. Others have suggested it could be as high as £1.3 billion.

YVETTE COOPER, CHIEF SECRETARY TO THE TREASURY


False. This figure relies on current Council Tax Benefit (roughly £400m) being removed from the Scottish block. The rest will be made up from central (Scottish) government.


2. LIT will make Scotland the highest-taxed part of the UK and this might encourage businesses to leave.

INSTITUTE OF DIRECTORS


It’ll do no such thing, because council tax is being removed. Replacing one tax with another, which even its supporters admit will collect a lower amount, can not possibly represent an increase in the overall tax burden.

Perhaps we could lock Yvette Cooper and the IoD in a room together so they can make up their minds as to whether LIT would be a tax increase or a decrease. Just a thought...


3. There will be serious service cuts at council level unless local income tax is set at 4.5p or higher.

THE LABOUR PARTY


See point 1.


4. LIT may be illegal under the provisions of the Scotland Act because it is unclear whether a local tax can be replaced by a national tax.

PROFESSOR RICHARD KERLEY, OF QUEEN MARGARET UNIVERSITY


Gotta love the use of the word ‘may’ here. The only basis for saying that LIT would be illegal is if someone were to produce a statutory definition of the word ‘local’ in the Scotland Act. Since no such definition exists and given local taxation is very clearly a devolved matter, let’s move on.


5. Replacing an unfair tax with an unworkable tax will cause more misery than we can know.

PATRICK HARVIE, GREEN PARTY


This is a personal assertion and nothing more. As for unworkable, on a sliding scale of difficulty running from 'easy-peasy' to 'Land Value Tax', it's sitting quite comfortably towards the easier end of the scale.


6. There will be a 'damaging' impact on service personnel, who would have to pay the new tax in full, but currently have their council tax reduced. This could lower morale and cause yet more recruitment problems.

BOB AINSWORTH, ARMED FORCES MINISTER


Service personnel already have deductions made to their salaries to pay for their council tax, so there's no reason why dispensation couldn't also be given under LIT.

It’s possible that higher ranks may end up paying more. However, I’ll bet the marginal rate of tax applicable to a Brigadier is unlikely to be a major factor in keeping people out of army recruitment centres.


7. There will be serious anomalies over people living in England but working in Scotland. There are also concerns that people may register as living in England to avoid paying.

THE INSTITUTE OF CHARTERED ACCOUNTANTS


Presumably these cross border commuters, even though they be they ever so few in number, pay council tax somewhere at present. If your home is in England, you'll continue to pay CT. If you have a home in Scotland and England, then there's already well established residency rules for liability for the 3p tax varying powers which could come into play.


8. Hard-pressed students, who are currently exempt from the council tax, would have to pay.

THE NATIONAL UNION OF STUDENTS


This is an argument to exempt students from Income Tax full stop. In any case, if you're earning above the tax threshold, which many students will not be, then there's no reason why you shouldn't be contributing on that portion of your earnings above the earnings threshold.


9. Scottish firms would be placed at a competitive disadvantage to companies in other parts of the UK because LIT additions to wage packets would be passed on to customers.

SCOTTISH CHAMBERS OF COMMERCE


Rubbish. Income tax would be no more passed on to consumers via staff wage claims than is council tax at present. If anything, given the burden it takes off the poorer paid, it might ease pressure on employer payroll costs.


10. LIT will take £70 million from vital city council services which will lead to severe cuts.

GLASGOW CITY COUNCIL


See point 1. If the argument is that Glasgow has an insufficient tax base, it seems to be ignoring the likely level of central government grant support which would continue to come to local authorities.


11. The PAYE system does not easily deal with taxpayers who receive income from different sources, including pensioners receiving pensions from different employers or those who have various part-time jobs – this will particularly affect those on low incomes who will be exposed to incorrect PAYE codes, and these practical issues should not be underestimated.

THE LAW SOCIETY OF SCOTLAND


There'll be no arguments from me on this one. This is a serious concern, and while not insurmountable, it's something which needs to be thought through.


12. Regardless of the rate of tax chosen, there will be uncertainty as to the yield that can be obtained, as revenues derived from income taxes can be more volatile.

SCOTTISH COUNCIL FOR DEVELOPMENT AND INDUSTRY


This is true, although it's possible to overstate the effects given the relatively low proportion of the overall local government settlement will come from LIT.


13. LIT would be technically complex and challenging to implement because of the complexities of tax law, and trying to sort out what would happen to the £400 million council tax benefit.

THE CHARTERED INSTITUTE OF PUBLIC FINANCE AND ACCOUNTANCY


Indeed. It's still not an argument for not going ahead and in fairness to the institute, I don't think they intended for their measured comments to be given the Chris Hoy treatment by the Scotsman.


14. Investors and businesses who are thinking of coming to Scotland will be scared away because of the extra income tax.

CBI SCOTLAND


Oh, behave yourselves. See point 2.


15. LIT probably breaks European law by removing control of raising local finances from councils. It could break Article 9 of the European charter of local self-government, which guarantees the right of councils to raise a large part of their own finances.

PROFESSOR CHRIS HIMSWORTH, OF EDINBURGH UNIVERSITY


That word 'probably' again. LIT will be a tax levied specifically to pay for local services. Even describing this one as 'recondite' doesn't do it justice.


16. Wealthy people who have unearned income from sources like share dividends can avoid LIT whilst poorer people would have to pay.

THE SCOTTISH TRADES UNION CONGRESS


They can avoid it on their unearned income, but not their earned income. In any case, over a million Scots earn less than £160 [SOURCE: HMRC] from their savings and investments. 3% of £160 is £5 – is the STUC really suggesting that it's worth rifling through the bank accounts, ISAs and BT shares of over a million Scots, just to extract an additional £5 or less from them in LIT?


17. The UK tax system does not give across-the-board allowances for disability and, in the absence of such allowances, the burden of LIT will be higher on disabled people than on the general body of taxpayers.

LOW INCOMES TAX REFORM GROUP


This may be true, but that's a broader argument for tax reform rather than one which affects LIT particularly.


18. LIT will be more intrusive into people's lives because it would require far greater knowledge of their personal circumstances than a property tax would.

THE INSTITUTE OF REVENUES, RATING AND VALUATION


If you class making a declaration of income to the collecting authorities as an intrusion, then yes, it probably is.


19. At present, a cohort of carers are currently "disregarded" (treated as not living in the property) when calculating council tax. Households with multiple taxpayers will end up paying more and this has the potential to include more carers who are not currently liable for council tax.

CARERS SCOTLAND


Possibly, but carers on low earnings will find themselves paying very little, or indeed nothing at all. If you are in receipt of the carers allowance, you need to be spending more than 35 hours a week looking after someone, so your opportunities for earning anything to put you above the earnings threshold are unlikely to be very great.


20. The £281 million of savings that need to be made to create a 3p local income tax could be used instead to reduce the burden of the council tax.

THE CONSERVATIVE PARTY


It could, but that still wouldn't make it fair. Nor is a call to bung more cash at adding ever more exemptions to the CT or simply to further reduce it much of an an argument against LIT.


21. LIT would bring unwelcome extra bureaucracy and cost to businesses because of all the extra paperwork created in sorting out employees' income tax. Lib Dem proposals for different rates for different areas would make it even worse.

THE FEDERATION OF SMALL BUSINESSES


I have some sympathy with this view. However, I think the impact can be overstated. For larger companies, suitable payroll software should make light work of the administration required, just as it does with pension contributions.


22. Families will be worse off, or there will be cuts in public services, because the 3p rate will not be enough to fund current service levels.

UNISON


Nonsense which could have come straight from a Labour Party press release. See points 1 & 2.


23. Water and sewerage charges are collected by local authorities on behalf of Scottish Water – the consultation did not present any proposals on how such charges will be set and collected under LIT.

SOCIETY OF LOCAL AUTHORITY CHIEF EXECUTIVES


True, but again, not an argument against LIT per se.


24. LIT would be bad for the environment because it will take away the flexibility needed to bring in specific charges for rubbish collection.

THE POLICY INSTITUTE


Let me get this straight... LIT would be bad for the environment because it might not let us do something that we're already not doing? Much silliness. Andrew Neil and the Barclay Brothers have a lot to answer for the tripe this lot have churned out– at least they're merging with a more sensible crowd now over at Reform Scotland.


25. The SNP's centralising LIT proposal reduces the lack of control [sic] that councils have over local finances.

SOUTH LANARKSHIRE COUNCIL


'Reduces the lack of control?' A good thing, surely?

You know, I have some sympathy with the argument I suspect they actually made. I just see merit in having the rate set nationally, at least until things settle down. Again, though, hardly a clinching argument.


So, some concerns which are substantial, nothing which is insurmountable, and some hysterics from a few of the usual suspects whom you'd think really ought to know better. And despite the headline, there's not a single argument against LIT to be found which even approaches being remotely conclusive.

Right, I'm away for my tea now. However, do please read Jeff's version of the same exercise - it's also only fair to point out that he did beat me to the punch with this one by several hours!
Posted by Richard Thomson at 6:54 PM
2 comments:

Cato said...

Don't think much of your legal analysis on point 4.

The courts won't refuse to interpret "local" simply becuase there's no statutory definition of it. The word will instead most likely be defined according to its normal usage-and in no way, in normal usage, can a nationally set and collected tax be defined as "local", regardless of what it's spent on.

Besides-do you want to peril local services and economic stability on something of which, judging by your "not remotely conclusive comment", you are hardly convinced yourself?
9/04/2008 11:08 PM
Scottish Unionist said...

Richard

Your first point tacitly acknowledges that there would have to be be an additional diversion to councils from the Scottish block of a not inconsiderable sum (probably in excess of £350m per annum) to make up for the revenue shortfall due to the implementation of a fixed 3% LIT.

Yet in your third point you use that fact to deny the possibility of service cuts! Don't you realise that such money will no longer be available to the SG? How then could spending cuts be avoided?!

Further to point 4, what do you make of the fact that the SNP's version of LIT, with its nationally set rate, appears to foul of the European Charter of Local Self-Government?

Article 9 of that charter mandates: “Part at least of the financial resources of local authorities shall derive from local taxes and charges of which, within the limits of statute, they have the power to determine the rate.”
9/05/2008 5:57 AM