A very welcome guest post here from Steve, who’s a lefty with a particular interest in how we tackle poverty in Scotland. You can tweet him at @3pSteve. He occasionally blogs at taxingscotland.wordpress.com.
Imagine you’re a minister working for the Scottish Government, and Alex Salmond says, here’s £700million to dish out to people living in Scotland. You decide how it’ll be done, who gets what, come up with a plan and get back to me.
What would you do? Maybe you’d decide to give every individual the same amount, give all 5 million of us £140 each? Maybe you’d give them a token to spend on food so they couldn’t waste it on booze and cigarettes? Maybe you’d give it all to children, or to disabled people, or to the poorest members of society. It depends on you and your own personal politics of course but let me ask you the following:
Would you start by giving over £100 million of it to the UK Government?
Would you give more to the richest 10% of people in our society than to the poorest 30%?
Would you give almost twice as much to the richest 50% in Scotland as you gave to the poorest 50%?
I ask because that’s exactly what the council tax freeze does.
We’re in year 4 of the freeze, and by the end of this year the freeze will have cost £700 million. The UK Government benefits to the tune of £112 million.
People in Scotland get the remaining £588 million shared out between them, and the rich get a lot more than the poor. To date the Scottish Government has not published an income decile analysis of the impact of the council tax freeze but John Swinney has stated a number of times that relative to income the freeze benefits the poor more than the richest.
I wanted to examine that in more detail, so I asked Margo MacDonald MSP if she could ask the Government for an income decile analysis of the freeze. I’d just like to say thank you to Margo MacDonald, and to Mary who works in her office. The Government obliged and sent the following table (SG info on CT freeze):
|
Income Decile |
||||||||||
|
Bottom 10% |
Decile 2 |
Decile 3 |
Decile 4 |
Decile 5 |
Decile 6 |
Decile 7 |
Decile 8 |
Decile 9 |
Top 10% |
|
| Saving as % of net household income |
0.8% |
0.5% |
0.5% |
0.5% |
0.5% |
0.5% |
0.5% |
0.4% |
0.4% |
0.3% |
This shows the council tax freeze to be progressive. On average, as a proportion of household income the poorest get a greater benefit from the freeze than the richest. But in cash terms the story looks a little different. Take a look at the following table, created by combining the data provided to Margo MacDonald with official Government data on income deciles:
|
Income Decile |
||||||||||
|
Bottom 10% |
Decile 2 |
Decile 3 |
Decile 4 |
Decile 5 |
Decile 6 |
Decile 7 |
Decile 8 |
Decile 9 |
Top 10% |
|
| Av. cash benefit of 4-yr freeze |
£141.44 |
£150.15 |
£182.00 |
£214.50 |
£246.35 |
£284.70 |
£330.85 |
£309.40 |
£382.72 |
£507.00 |
| Cost of freeze (£m) |
30.3 |
32.1 |
38.9 |
45.9 |
52.7 |
60.9 |
70.8 |
66.2 |
81.9 |
108.4 |
What this shows you is the average cash benefit of the council tax freeze for households in each income decile, and the amount it has cost to hand out those sums.
For example, households in the bottom 10% get £141.44 on average, while the top 10% get £507 on average, three and a half times as much. The higher the income bracket, the more the council tax freeze costs, targeting resources at the richest in society, at the relative expense of the poorest.
Finally, what about my claim that the freeze benefits the UK Government to the tune of £112 million? Well the freeze works by protecting the council tax payer from potential increases. Scottish Government figures show that the UK Government pays 16% of all the council tax in Scotland through the council tax benefit scheme, and so they benefit from the freeze too. Sixteen percent of the £700 million goes to the UK Government, which is £112 million.
Look again at the table above. The council tax freeze saves the UK Government more than the bottom 30% of households in Scotland combined. That’s the poorest 700,000 households in Scotland receiving less from the freeze than the UK Treasury. Does that make any sense?
The longer the freeze goes on, the more expensive it becomes. I think it’s time to ask if there isn’t a better way to give households in Scotland a financial break.
As I asked at the start, what would you do?
#1 by Douglas McLellan on November 2, 2011 - 12:47 pm
This just shows what a stupid tax that the Council Tax is and why is should be replaced. The need for the freeze in terms of household bills was required, I just wish that we could have a tax that is based on ability to pay. Like the LIT.
#2 by James on November 2, 2011 - 12:53 pm
Don’t make me explain again why LIT is inequitable compared to Land Value Tax.
#3 by setindarkness on November 2, 2011 - 1:15 pm
Don’t make James explain why LIT is inequitable compared to Land Value Tax. He don’t like explaining why LIT is inequitable compared to Land Value Tax. He get angry. You wouldn’t like James when he gets angry.
Everyone – just implement Land Value Tax, okay!
I’ve got half way through Andy Wightman’s book and it made me angry. When I got angry, I turned green.
(is this the lamest comment you have received? cybertinhattery aside)
#4 by James on November 2, 2011 - 5:04 pm
No, I loved it. I was just hoping we’d stay on topic given Steve’s good research, that’s all. But yes, HULK SMASH REGRESSIVE SNP TAX POLICY.
#5 by Douglas McLellan on November 2, 2011 - 4:58 pm
We’ve been here before…..we disagree (best leave it at that).
#6 by Doug Daniel on November 2, 2011 - 1:02 pm
What would I do? I’d abolish council tax and replace it with a fairer tax.
It’s all very well saying the richest 10% save three and a half times as much as the bottom 10%; but the fact is the bottom 10% are far more glad of that extra £141.44 in their pocket than the richest 10% are of that £507 in their pocket. Proportionality is far more important than raw numbers. If council tax had been allowed to continue marching upwards, it’s the bottom 10% who would have been feeling it – it would have been a drop in the ocean to the top 10%.
The SNP would probably have used this parliament to put through changes to local taxation if it hadn’t been for Labour trying to scare the horses and children with their FOI requests. We’ll never know now, though.
What would you do Steve? Would you unfreeze the council tax and let councils escalate it ever upwards like they were doing before? Would that help those in the bottom 10%? Because whenever people complain about the freeze and how it saves the richest more money, they sound like they’re asking for it to be unfrozen.
If, however, your point is that you would like the tax replaced with a fairer tax (it’d be pretty difficult to replace it with an unfairer one…) then you should perhaps focus on arguing against council tax as a way of raising revenue. Without proposing an alternative solution, it just sounds like an argument for unfreezing the tax.
#7 by Steve on November 2, 2011 - 7:52 pm
The bottom 10% may be grateful for a relatively small benefit, but I’d rather they got more. and if receiving £507 isn’t that big a deal to the top 10%, maybe they could make do with a little less?
I think I probably am in favour of the council tax being unfrozen, but for an alternative way to be found of giving people some of their money back that’s fairer to those on low incomes, and doesn’t send £112 million into the black hole of the UK Treasury coffers.
#8 by Doug Daniel on November 3, 2011 - 12:57 pm
“The bottom 10% may be grateful for a relatively small benefit, but I’d rather they got more. and if receiving £507 isn’t that big a deal to the top 10%, maybe they could make do with a little less?”
You can’t do that with Council Tax though, which is why it’s such a rubbish tax (well, the real reason it’s a rubbish tax is because it was a half-arsed replacement for Rates when the Tories were forced to abandon the Poll Tax).
So you’re in favour of it being unfrozen, but also replaced with something better. That’s basically my position too, as I just look at the freeze as a way of mitigating against the negative effects of a ridiculous tax until it can be replaced. But if there is no alternative on the table, then would you still unfreeze it? That’s my point.
We have people mentioning LIT and LVT. Unfortunately, we can’t even get a consensus on a blog, so what hope is there of getting a consensus in Holyrood?
#9 by Fraser Wight on November 2, 2011 - 1:12 pm
To be fair the SNP did want to get rid of Council Tax – it just never worked out and obviously the numbers couldn’t add up.
Doug is right – unfreezing it hurts the bottom as a percentage more than anyone else. Whilst the top earners gain what seems like a lot, they actually don’t benefit as much overall.
The treasury isn’t GAINING – their just not being hurt. A freeze with no payout would see councils get less and services destroyed across the country. The Westminster aspect is pointless and nationalistic scaremongering – if there is such a thing.
I think if there is a fairer system that that should definitely be taken up. But the council tax freeze is the most effective and easiest way for the Scottish government to enforce this. It was also a big big vote winner so I can’t see it getting dropped any time soon.
In the end it helps people in all brackets quite well and seeing as the higher you earn the higher your mortgage costs/household costs are likely to be – doesn’t it do exactly what its meant to do? In that its to reduce the cost of your household – its not an income boosting scheme, just a cost reduction one.
Remember one of the reasons the SNP wanted rid of this was people in expensive houses or houses whose cost went up or whose brackets were wrong/unfair were getting hurt by it.
The freeze is doing what it was intended to do.
#10 by James on November 2, 2011 - 1:17 pm
Your logic here is convoluted to say the least.
More money goes to the rich and to Westminster than to the poorest. No progressive can support the freeze.
#11 by Fraser Wight on November 2, 2011 - 1:30 pm
Without the freeze many families would have found their costs up by hundreds of pounds.
Even ignoring its original intentions, fact is many people bought mortgages in houses that due to economic conditions they can no longer afford to stay in. Without the freeze they’d be out on their ear. Some even with the freeze can’t afford it.
I’m against Council tax because its not based on income.
I’m for the freeze because I want it reduced.
The SNP should definitely look back to things like local income tax, or at least making Council tax much simpler, and with some connections to household income.
And the money doesn’t go to Westminster – it goes to the council services that wouldn’t be paid for without the tax.
The tables above just show Council Tax isn’t a progressive tax – not exactly new information, and not something the Scottish Gov hasn’t tried to tackle before.
The bottom incomes are still benefiting. Hence supporting the freeze.
#12 by Indy on November 2, 2011 - 1:22 pm
I would suggest since we have the figures to hand let’s have another calculation on how much extra – both in cash terms and as a proportion of income – the lowest five income deciles would have had to pay if the council tax had not been frozen but gone up by 3 per cent year on year.
I assume the figures there are based on that assumption?
Is it as simple as just reversing the figure? Instead of saving X amount they would have had to pay X amount. Or is it not that simple?
Sorry I am confusing myself – hope someone understands me!
#13 by Fraser Wight on November 2, 2011 - 1:32 pm
I would think so yes. The benefit is just the ‘we didn’t have to pay that’ because of it. So everyone is in the red.
Its not perfect. But certainly not ‘bad’.
#14 by Allan on November 2, 2011 - 7:05 pm
Thats assuming that Council Tax only went up by 3% a year.
#15 by Steve on November 2, 2011 - 8:02 pm
Indy, yes that’s it. The figures in the table show the extra amount that would have been paid over four years if the council tax had gone up by 3.2% each year.
One note of caution, take the £507 figure as an example, and let’s round it to £500. In year one the top 10% would have benefited by £50, in year two by £100, in year three by £150, and in year four by £200. That adds up to a total of £500 over the four years.
#16 by Daniel J on November 2, 2011 - 2:06 pm
Yes, the poorest have saved money they otherwise wouldn’t have.
What some seem to be forgetting is that it could have been made sure that even with council tax increases more money from the Scottish Gov could have been given back to poorest in society, thanks to those top rate payers topping up the council funds so Holyrood doesn’t have to.
#17 by GMcM on November 2, 2011 - 2:45 pm
My main problem with the CT freeze is that it hurts the poorest in society. The poorest rely on the services provided by the council far more than those in the dearest homes. They save less money through the freeze and many have to now pay for some services the council used to provide for free. You cannot look at the freeze and the proportionate savings (with regards to income) without taking into consideration the reduction in services caused by the freeze to assess the benefits and drawbacks on each section of society.
There may not be a figure that you can put on those services.
I know of a woman who saves roughly £25 per year on her CT yet someone in a Band H house will save £250 per year. She has seen reduced services and is affected by these more than the person in the Band H house.
If the SNP would properly fund the freeze that might make it a little better!
If in the first year X*0.03 = £70m the following year would be (X+£70m)*0.03 = £72.1m and so on.
By giving £70m every year the gap between what would have been raised by consecutive 3% increases and what is being provided grows. This results in greater cuts to services than would otherwise be the case.
By the end of this Parliament, if 3% increases had occurred, the payment to local authorities to maintain 2007 levels would £622m in the final year. What will be paid in is projected to be £560m. A final year shortfall of £62m.
A total shorfall over the course of the freeze of £185m. The SNP by adopting this policy are effectively putting a further £185 of cuts onto local government.
Also, this doesn’t take into account the reduction in services caused by inflation running at 5.2% not 3%.
If my numbers are wrong, or way off, please let me know.
Labour promised a 2 year further freeze with £80m each year. I have projected that for the two years in question the increase of 3% year on year would require £76.5m then £78.8m each year, therefore Labour would have put more money in than required. This would have left councils £2m down on what they would have had at that stage. Not £21m as the SNP have planned.
#18 by R.G. Bargie on November 2, 2011 - 5:47 pm
It’s hard to know where to start on what’s wrong with this post, and indeed the article that spawned it.
– “There may not be a figure that you can put on those services.”
That’s putting it mildly. Your entire argument is snake oil until you can start beefing it up with some reality. Which services have been removed, how much are people having to pay to replace them, etc?
You’re also working on the assumption that a real-terms cut in funding also necessarily means a cut in the front line, which of course it doesn’t. The SNP’s record on efficiency savings is pretty good so far.
As for local government enduring cuts, well, duh. Welcome to 2011. Nobody wants to cut services, but there *just isn’t as much money any more*, and somebody has to grasp the nettle.
Now, the obvious retort to that is “Okay, so let’s take more from the rich”, and that’s a fine principle. But it’s not that simple. As several people have pointed out, the Council Tax is a very blunt instrument for wealth redistribution – not least because it takes no account of people who, for one reason or another, might live in valuable houses but have very little disposable income.
So what it is it you propose those people do? Be thrown out of their homes and made to live somewhere cheaper? I recall someone suggesting the same thing only last month about pensioners living in five-bedroom houses, and the left was (quite rightly) up in arms about the prospect.
Secondly, as soon as you start complicating simple policies like a CT freeze, costs go through the roof. Wherever you draw the line, bureaucracy gobbles up money like it’s going out of fashion.
– “yet someone in a Band H house will save £250 per year”
How much do you think it will cost to do all the paperwork needed to determine that this person shouldn’t be eligible for a CT freeze? You can’t know ANYTHING about the way the likes of the Department for Work and Pensions operates if you think it’d be less than £250. More likely it’d be five times that much, so by shutting the wealthier out of the freeze you’d have taken far more money out of the budget than you’d saved.
– “Labour promised blah blah”
It ill behooves Labour to start whining that there’s no money in the kitty and complaining about where it’s gone or is going, because we all know exactly who it was who got the country in hock up to its throat over the last 13 years. The SNP tried to get rid of the Council Tax last time round, but was shouted down by kneejerk opposition for the sake of opposition. Labour also “promised” they’d come up with their alternative at some point in the last Parliament – where is it, then? I wouldn’t give you tuppence for their “promises”, even all the above notwithstanding.
Me, I’m completely in agreement with Land Value Tax as a replacement. But it won’t happen, because nobody in power is arguing for it. Labour and the Tories have too many rich friends, while the Lib Dems have no idea what they stand for, and nobody believes anything they say any more anyway.
So right now we have to work with what we have, and CT freeze is an imperfect but still worthwhile way of putting more money directly into the pockets of the most vulnerable. There is no better solution within the current framework that wouldn’t cost more to implement than it would redistribute, and high-minded abstract theorising is a luxury the poor can’t afford as they try to work out how the hell they’re going to pay the fuel bills this winter.
#19 by GMcM on November 3, 2011 - 9:35 am
Do you not think during times of cuts in budget sizes the governing party has a responsibility to think outside the box to come up with ways of protecting the most vulnerable?
You’re right that in some cases cuts in funding do not result in cuts to front-line services. You’re wrong to think that the SNP have a good record on efficiencies unless you think 3,000 teachers out of work; 2000 civilian police staff jobless; thousands more construction workers on the dole etc etc are good ways of meeting budget targets.
Yes we’re experiencing cuts, no-one is disputing that; the point I am making is that the SNP are getting things wrong with the freeze – diverting money away from other initiatives that could reduce unemployment and protect vulnerable groups. To turn a blind eye to the cuts that the SNP are imposing and just try and blame Westminster for all the cuts we’re seeing is unbelievable.
The cuts in teacher numbers for instance were happening before the cuts from Westminster came through. Are these the efficiencies you were talking about?
I didn’t say you should only provide the freeze for lower bands – I think I’m right in saying it would require a change in law to allow that anyway! I’m saying that instead of giving most of that money to the richest people we should find other ways of giving it all to those who need it most. You’re saying that although it helps the richest more it’s ok because at least it helps the poor a little? I would prefer to see an approach that would tip the balance more towards the most vulnerable.
Ahh the same old line about it being big bad Labour who burst the ball. Why is that? Labour didn’t regulate the financial services et al adequately? This will be the same Labour who were accused of over-regulating by the Tories AND the SNP; who were told by Osborne and Salmond that we should offer more light touch regulation to be more like Ireland. If the choice is between what Labour did and greater regulation, I go for greater regulation; if the choice is between what Labour did and what the SNP/Tories proposed, I stick with Labour.
#20 by Indy on November 3, 2011 - 11:05 am
You had a chance to vote for a system which was based on ability to pay and you opposed it because:
1. It would result in “ordinary hardworking families” paying more.
2. It would drive away big business by making Scotland the most highly taxed part of the UK (but only for rich people obviously).
So having opposed LIT on right wing grounds Labour is now going to oppose the council tax freeze on left wing grounds? (Although you didn’t actually oppose it did you?)
Get real. Choose a position and stick to it because you are all over the place right now.
#21 by GMcM on November 3, 2011 - 1:26 pm
As James has commented, the LIT charges on income and not on capital therefore it doesn’t look at ability to pay at all. It’s wrong to say it does what it doesn’t.
What about students who work full-time over the summer and live at home? They will pay LIT whereas right now their parents take care of council tax bills. Would students be exempt which I’m assuming would push up tax on everyone else? Would they get their money back at the end of the year, again forcing the price up on everyone else to fill the hole this creates?
My main problem with LIT is that it is not strong enough to withstand troubled economic times. The reason the SNP won’t bring it in just now is because of the economic situation. If this was such a fair policy then this is precisely the time to bring in LIT to help the poorest and most vulnerable during these harsh economic times.
I’m sorry but standing up for hard-working families is right wing? I keep hearing that Labour needs to stand up for hard-working people again; are you saying that those advocating this are wanting us to go to the right?
You know I wish I lived in La-La land with the SNP – you can be right when you’re wrong and tuned to the Moon. Seems a nicer place than planet Earth. Also I hear you get one of those fancy SNP Budget Calculators when you go there; you know the one that adds up even when it doesn’t?
#22 by James on November 3, 2011 - 1:33 pm
This is becoming too much Labour-and-SNP-stomping-about-over-each-other negativity for me. Moderation will be more intensive if that continues.
#23 by GMcM on November 3, 2011 - 5:01 pm
Sorry about that.
I’ll try and be a little more measured with my comments in future.
#24 by R.G. Bargie on November 3, 2011 - 11:23 am
“the SNP are getting things wrong… we should find other ways… I would prefer to see an approach that would tip the balance more towards the most vulnerable”
Well, we’re all ears. Let’s hear your ideas. Or are they like the fabled, mythical “positive case for the Union” – something everyone agrees needs to be made, but nobody can actually quite manage to get around to actually describing, because they haven’t a clue what it is?
The big problem I have with this article and many of the responses, including yours, is that they’re big on “THIS IS WRONG!”, but offer no constructive alternatives other than “We should do something else”. What? What should we do? As I’ve already noted, we’re STILL waiting for Labour’s official alternative to the Council Tax, after almost five years. How much longer do you need to think about it?
#25 by Allan on November 3, 2011 - 6:40 pm
“Ahh the same old line about it being big bad Labour who burst the ball. Why is that? Labour didn’t regulate the financial services et al adequately? This will be the same Labour who were accused of over-regulating by the Tories AND the SNP”
Well, yes. The seeds of the Credit Crunch and the ensuing recession were sown by Brown and his policy of “Light Touch Regulation”, or to give it it’s previous name Thatcherite Laziz Faire economics (file next to Swinney’s love of Reganite Trickle Down economics).
If big bad Labour were intent on making amends, prehaps they should go after Osborne’s policy of turning the UK into the biggest tax haven within the EU, and they should go after Dave “Sweetheart deal” Hartnett for his corrupt deals with Vodaphone and Goldman Sachs. But no, Labour are not intent in making amends, especially when there are spivs and snake oil salesmen in the city to appease come Westminster Election time.
#26 by Steve on November 2, 2011 - 8:06 pm
That’s a good point. However, the council tax freeze isn’t funded in the way it used to be. The next freeze is not fully funded, it’s achieved by offering councils the choice of a big cut to their budget if they done’t freeze the tax, or a smaller cut to their budget if they do.
You may be interested in an old blog post I did about this – http://taxingscotland.wordpress.com/2011/09/21/swinneys-ct-freeze-rip-off/
#27 by GMcM on November 3, 2011 - 9:00 am
Very interesting Steve, thanks.
#28 by Doug Daniel on November 2, 2011 - 3:15 pm
“I know of a woman who saves roughly £25 per year on her CT yet someone in a Band H house will save £250 per year. She has seen reduced services and is affected by these more than the person in the Band H house.”
You’re assuming that the person in the band H house has a massive income. That’s not necessarily true. I used to live in a band G flat in Glasgow, whereas my parents’ house in Aberdeen is a band D. But my dad’s income alone was far bigger than mine, so I felt the council tax increases far more than they did.
Can we just get this clear folks: it’s not the council tax freeze which is unfair – it’s council tax, full stop. It’s a rubbish way of raising revenue.
#29 by GMcM on November 2, 2011 - 3:28 pm
The freeze IS unfair. Council tax could definitely be fairer but the alternatives on offer are no better. Tell me a way to fund councils better than council tax.
Doug can you not see from the funding gap that the freeze is more unfair than the council tax itself? With the SNP it’s all about the quick headline but never about the bigger picture (unless the bigger picture is independence of course).
James = I don’t know enough about the LVT but I’m open to persuasion on the proposal. It seems far better than LIT.
#30 by Indy on November 2, 2011 - 3:33 pm
Councils are not funded by council tax though – council tax accounts for only a small amount of their funding. Most of their funding comes through the Scottish Government.
#31 by GMcM on November 2, 2011 - 3:59 pm
I know it doesn’t fund councils and proportionally is small. However it does fund the councils in some respect, no?
Nice try at ducking the main issue though 😉
The SNP see fit to oversee a £185m shortfall in council budgets via the freeze; do they believe it is pocket change that councils can do without or is it a price worth paying for a quick headline that could help their case for independence?
How many extra jobs will this money cost? How far will services be cutback to accommodate this cut in funding?
#32 by James on November 2, 2011 - 3:35 pm
There’s a bit more detail here, and I can get you more if required. It’s got a long and honourable history, and was even part of Lloyd George’s People’s Budget of 1909 before the interests of the rich won out.
#33 by Angus McLellan on November 2, 2011 - 3:42 pm
But why should LVT vs LIT be an either/or situation? Why not both/and (and we could add LVAT too) and give councils as much choice as possible in raising funds. If it’s a mistake to make the Scottish government over-dependant on a single tax – income tax in the case of Calman – doesn’t that have to be just as true of local government if they have only-LVT or only-LIT?
#34 by James on November 2, 2011 - 3:49 pm
Well put, and I’d fully support that. In fact, I persuaded SGP Council to support that too.
It’d also make local elections more interesting and more important. Greens would be out on the doorstep pledging to use LVT as far as possible, Nats would be out arguing for LIT etc. Labour would be, well, who knows, but the point’s still there.
#35 by Douglas McLellan on November 2, 2011 - 4:59 pm
I’d back that as well. I’d take LVT as a replacement for Business Rates right now.
#36 by Indy on November 2, 2011 - 5:10 pm
Doesn’t that depend on how it is done? I could see big problems if city centres and high streets are zoned at a higher level than out of town retail and business parks. The whole direction of travel has been to try and get people back onto their local high streets rather than going out of town. But if it is the value of the land that decides it would that not go against the grain of that policy?
#37 by Indy on November 2, 2011 - 3:31 pm
Yes that’s the pertinent point but the other pertinent point is that we have 4/5 years to discuss a replacement.
Barring the SNP Government being kicked out of office somehow or other between now and the next election the council tax freeze will stay in place but the SNP is against council tax as a system, so are the Greens and the Lib Dems. And maybe Labour, I am not sure.
So we can go over the same arguments about the council tax freeze over and over again or discuss what to replace the council tax with.
I’m not against a land value tax although I have some concerns about whether it could replicate the same fault of the council tax in the sense of not taking into account income and ability to pay. But would it not be possible to come up with a version which did take account of ability to pay.
#38 by Steve on November 2, 2011 - 8:12 pm
Indy, I agree we have time to consider future local taxation options, but I’d still like to encourage the SNP to consider alternatives to the freeze in the meantime, which may be in keeping with the spirit of the freeze – giving money back to people during hard times – but does so in a more equitable manner.
If the freeze continues for a total of 9 years as planned, it will have cost £3.15 billion, a significant proportion of which will have been given to the UK government and people who really don’t need it.
#39 by CassiusClaymore on November 2, 2011 - 4:08 pm
Er….may I be so indelicate as to point out that the Government is not ‘dishing out’ £700m. The £700m doesn’t belong to the Government – it belongs to us, and all the Government/the Councils have done here is not confiscate it from us by way of taxation.
Classic leftist mindset – everything belongs to the Government!
Anyway, tax geeks can argue all day long whether the freeze is progressive or not, but the bottom line is this – a freeze really helps people who are struggling, but makes no difference to someone like me, who is in a more fortunate position. As such I’d consider it progressive.
It’s also worth considering that the people at the high end of the scale often don’t consume much by way of council services – private school, private health, seldom or never taking up the time of police, social work, housing, etc. etc., so the Government gets a double win from those kind of folk.
Personally I reckon that my £2K+ council tax is a bit of a win for Edinburgh Council given that I take almost nothing in return.
Of course, Councils waste our money hand over fist too. I got a letter from the Council today offering me FREE cavity wall insulation and loft insulation. WTF? If I want it, I’ll buy it. Take the money off my council tax bill, or at least give it to someone who needs it.
CC
#40 by Steve on November 2, 2011 - 8:20 pm
Point taken, the £700m does belong to us. But the “us” in question is Scottish taxpayers.
The deal with council tax is if it goes some of it gets paid by the DWP.
Had the council tax not been frozen, Scottish taxpayers would have been £588 million worse off, but we’d have gained £700m worth of public spending.
#41 by Steve on November 2, 2011 - 8:20 pm
missing word “up”. If it goes up.
#42 by CassiusClaymore on November 2, 2011 - 5:16 pm
a propos of nothing, it would be eminently sensible to trial LVT or LIT or whatever replacement in one Council area rather than across the whole country. Even better, and once Scotland is suitably empowered, why not trial both LVT and LIT at the same time in different authorities? we’d then have hard comparative data which could be used to determine the optimum system.
CC
#43 by James on November 2, 2011 - 5:21 pm
I suspect, despite being the world’s biggest LVT fan, that there’s no scientifically optimum tax system. It’s politics, and choices have to be made. Some systems favour the rich (the poll tax, the Council Tax), some favour those with capital rather than those with earnings (local income tax), and some favour those with income rather than capital (land value tax).
#44 by Allan on November 2, 2011 - 7:26 pm
“Imagine you’re a minister working for the Scottish Government, and Alex Salmond says, here’s £700million to dish out to people living in Scotland. You decide how it’ll be done, who gets what, come up with a plan and get back to me.”
For a start, that’s the wrong question to ask. This lefty would spend it on our creacking infastructure.
However as this post is about the financing of local authorities, there’s two points to be made about the council tax freeze. Firstly the freeze might benefit high earners, but it’s effects are best felt by those people adjacent to the poorest in our society – low wage earners who earn too much to qualify for benefits and are squeezed by other household costs. Removal of the freeze would see a further burden on household bills. Of course, as many people have commented, the Council Tax is a strange system of local taxation – based on property values set 20 years ago. It’s a pity the SNP kicked Local Authority financing into the long grass as LIT was a vote winner in 2007.
The second point is one that CC touched on above. That councils are incredibly profligate with taxpayers money. Whether it’s the huge sums of money given in golden goodbye’s, the massive sums of money wasted in creating “arms-length” businesses from council services, or in renovating perfectly habitable headquarters Scotland’s council’s have not proven themselves adequate in handling taxpayers money. If the Trams fiasco taught us anything, it was this…
#45 by Erchie on November 2, 2011 - 8:06 pm
It’s a hellish one this
The SNP are against it
The bands have a fixed set between highest and lowest, so nothing can be done with the bands.
Off course, Council tax rebate still has to be paid by someone, and there is no guarantee that Westminster is still going to pay it out. You may not have noticed that Westminster is cutting benefits irrespective of need
Councils can choose not to take some money from the Scottish Government and keep putting the Council Tax up way, way above the rate of inflation, which is what they were doing before
LIT is kind of stymied by the restriction of 3% which is all Holyrood is allowed to vary tax
So, a root and branch reform of local taxation looks predicated on either FFA or Independence
Meanwhile, as my frozen income shrinks in real terms, as a carer for someone who will, inevitably have her benefit taken away (1 year max for ESA) I’ll take the Council Tax freeze just now thanks. You guys may not be that cash strapped, not so in my case
#46 by Observer on November 2, 2011 - 8:13 pm
People at the bottom end of the economic ladder don’t pay Council Tax. Even people in work on low wages get partial benefit (it’s very like Housing Benefit) so freezing the tax has literally given millions back to Westminster which we would have otherwise had in benefit. If the UK govt moves to a universal benefit, where people are given money & expected to pay their Council Tax themselves out of it, then any increase will hit them the hardest. It’s quite simply an unsustainable policy. It was brought in as a transitional measure before LIT was intrduced. LIT isn’t going to be introduced any time soon, because we are in a prolonged recession & it wouldn’t raise enough revenue.
The whole thing has been a disaster, but it is popular with voters which is why the SNP have stuck with it & Labour, unforgiveably, failed to challenge it.
If Margaret Thatcher had been responsible for this then there would be mass protests. But as it is the SNP who have done it, there aren’t.
It’s all going to blow up eventually. You don’t get public services for nothing. They have to be paid for.
#47 by Allan on November 2, 2011 - 9:19 pm
“You don’t get public services for nothing.”
True, but can you explain why councils up and down the country would rather cut services than their own re-numeration packages? Why pet projects have survived the cull, while libraries and schools have been sacrificed?
#48 by Observer on November 2, 2011 - 8:21 pm
”If the freeze continues for a total of 9 years as planned, it will have cost £3.15 billion”
Precisely. What is the opportunity cost of that? What could we have spent that on, instead of suppressing front line tax & not claiming money from Westminster to which we are entitled because it is raised from revenue & Scottish people pay taxes.
I am glad you have written about this, because I have long felt one of few voices in the wilderness opposing the Council Tax freeze.
#49 by Steve on November 2, 2011 - 9:10 pm
Thank you!
#50 by Erchie on November 2, 2011 - 10:44 pm
One of those voices in the wilderness opposing Council tax
Like the SNP and, allegedly the LibDems?
I think the SSP are agin it too
So you voices are few and far between
#51 by Barbarian on November 2, 2011 - 9:44 pm
Council tax should be charged at a flat rate as they do with the Armed Forces personnel, since they are posted around the UK.
It’s not the same as the poll tax – the charge is only applied to a household in the case of a married couple.
You collect it centrally and issue funding to councils. For one thing it stops unfair charges.
A neighbour of mine has exactly the same circumstances as me, except I have an end terraced house and have an additional room. For that I pay £250 per year more than he does, but we use exactly the same level of services.
#52 by Brian Nicholson on November 3, 2011 - 12:08 am
One of the good things about independence is that we will be able to choose the tax system that best suits our needs. Whether LVT or a form of LIT-LVT combination, it will be our choice and not subject to foreign decision making. If you want a better tax system, vote YES.
#53 by soosider on November 3, 2011 - 7:09 am
If I have followed the article correctly, it is in essence saying that the council tax freeze benefits the top 10% more than the bottom 10%, by about a factor of 3. Then the only way this can occur is if the top 10% are paying significantly more, ie by exactly the same factor of 3. A fuller picture would have to include such information as what proportion of the whole council tax is paid by each 10% banding..
I believe the Council Tax is a very poor way to try to finance LA, but that then leads us to have to consider how they should be financed. AT present I think they raise too little of their own and have to rely too heavily on funding from a central source. It actually starts to sound very like the arguments about the funding for the Scottish Government. This is where I would like to see the debate and discussion happening, how do we envisage LA, how could they be financed and just how much could be devolved down to a much more local level, to decentralise much of the revenue raising function down to the local. It may be that LVT is part of this also things such as sales tax, business rates. Ensuring that LA are raising as much of their income as possible.
#54 by Gaz on November 3, 2011 - 8:10 am
What a great post and some great comments to boot.
I think both LIT and LVT have a lot to be said for them but, IMHO, neither fully delivers a system that is 1) truly progressive, 2) promotes sustainable economic activity and is 3) cheap/easy to collect.
LIT is strong on points 1) and 3) but fails on point 2). LVT is strong on 2), relatively strong on 1) but fails on 3). However, both a clearly superior to CT which fails on just about all these measures.
If we can find a system that meets all these criteria it would be the perfect system for me. Does it exist? If not, can it be created?
#55 by Gryff on November 3, 2011 - 9:25 am
I think it might be impossible to raise a perfect tax as you describe. It is always going to be difficult to balance 1) and 2) to maximise bothwould require increasingly convoluted calculation and collection methods, thus affecting criteria 3) and of course the more complicated a tax the more likely it will be evaded, which is good for neither 1 or 2. As such a political decision has to be made as to whether the biggest problem is people earning too much, or owning too much.
Finally I think we can get a bit too obsessed about taxation being progressive, whilst the whole basket of taxes and welfare should be progressive, that does not mean too say that each individual one should be.
#56 by Steve on November 4, 2011 - 9:18 am
Thanks Gaz for your complement.
Gryff, totally agree about the basket of taxes thing, and it does seem that amongst people who comment on this blog at least, a combination of LVT and LIT would be an acceptable compromise, especially if individual councils had freedom to adjust the rates to suit their own electorates.
The only point I’d make is that the current basket of UK personal taxes (income, council tax, VAT etc.) overall hits the poorest hardest. I’m pretty sure the IFS and Joseph Rowntree foundation have both commented on that in the past. In my opinion that means in Scotland we should be concerned about any changes we make that might either make that overall picture worse, or could be used to make that overall picture better.
#57 by Alison on November 3, 2011 - 9:10 am
Great blog post Steve, thanks. This is an issue which I’ve been looking into at work, and as has been alluded to a few times in other comments here, there is a sense that people at the bottom end of the income scale are being hit twice – benefitting to a lesser degree from this policy than others on higher incomes may benefit; but also being more likely to access more local authority services than people on higher income levels. However, it is proving difficult to pin this down with hard evidence – anyone know of any work being done on this?
#58 by Doug Daniel on November 3, 2011 - 12:46 pm
“benefiting to a lesser degree from this policy than others on higher incomes may benefit”
I don’t understand why people find this so hard to grasp – the more you earn, the less benefit you get from the freeze. £500 is pocket change to a millionaire, but to someone on a low income, £140 can be the difference between paying all your bills or having to choose whether to heat your home or feed yourself.
The second point about services may or may not be true, but even if it is, people on lower incomes are not being hit twice. I suspect this is why it is difficult to find evidence to back your hypothesis – it’s difficult to prove incorrect theories.
#59 by Steve on November 4, 2011 - 9:30 am
Thank you!
I am not aware of any research into this I’m afraid, but intuitively it makes sense that those on lowest incomes who benefit the least in cash terms also rely on services the most.
The problem with pinning it down is that the freeze doesn’t necessarily result in additional cuts to council services, the cuts can fall elsewhere. John Swinney has a smaller overall budget to deal with as a result of the freeze but he sets the spending priorities. The first two years of the freeze were funded, councils got an extra £70 million so the cuts required to pay for it came out of central Government budgets.
Year three of the freeze was part of a deal for councils that on the one hand gave them a lot more money, but on the other also put a lot of additional requirements on them, the freeze being only one element of that package.
Year 4 is a straightforward rip off, and does take money out of council budgets, but it’s an election year for local government so who’s going to risk breaking ranks and sending people increased bills in Feb next year, two or three months ahead of council elections? And at a time of shrinking budgets, you can’t point to the exact services that are being cut as a result of the freeze, and the ones that are being cut as a result of other budget reductions.
Hope that makes sense!
#60 by Doug Daniel on November 4, 2011 - 12:47 pm
So let’s suppose that the freeze wasn’t happening. In year 4 the bloc grant from Westminster would still be getting cut massively, therefore the Scottish Government would still have to reduce its contribution towards the total revenue available to councils. So the councils would be left with a choice: increase Council Tax by just 3% as usual and make the same cuts to services that they’re having to make now; or increase Council Tax massively to make up the shortfall, greatly increasing the total cost of household bills at a time when people are already dealing with massive hikes in energy bills and food prices.
Neither is an attractive option, so at least the freeze is stopping them from being able to put even more pressure on household incomes at a time when everything else is going up rapidly.
Incidentally, we always assume the poorest rely on services more than the better off. Who says poor people are more likely to have children with learning difficulties? Who says poor people use libraries more than better off people? Etcetera etcetera ad infinitum.
#61 by Doug Daniel on November 3, 2011 - 1:07 pm
There’s an elephant in the room that no one has mentioned yet – the SNP’s manifesto promised to keep the freeze for a further five years. Since the SNP has adopted the rather unusual stance of trying to implement its manifesto as presented to the public, then we won’t be seeing the Council Tax unfrozen for this parliament. As a result, any talk of unfreezing it is just chin-stroking: there is no mandate to stop the freeze.
So what we need to focus on is finding an alternative to Council Tax. The SNP may not have put anything in their manifesto this time about replacing Council Tax, but if a party-wide consensus could be built within Holyrood, then I think that would be acceptable. So instead of bickering amongst ourselves about whether or not the freeze benefits the rich more than the poor (it doesn’t), it would make far more sense to try and get a debate over the replacement for Council Tax under way.
Of course, one problem is the question of how much power the Scottish Government actually has to implement a new tax and abolish Council Tax. Does anyone have conclusive proof that it can even be done under the current devolution set-up? If I remember rightly, one of the stumbling blocks for LIT last session was Westminster’s assertion that any change to local taxation would see Scotland lose its Council Tax benefit payments.
#62 by Indy on November 3, 2011 - 6:14 pm
That’s not the only elephant in the room. We have council elections in May.
Are Labour going to campaign to unfeeze the council tax? Short answer – no.
Which may leave some folks with a bit of egg on their face, particularly the ones who have been lambasting the SNP for roasting little puppy dogs instead of putting up the council tax.
#63 by Steve on November 3, 2011 - 2:04 pm
For those who asked for an alternative, here’s a simple one. Split the 700m equally. Give everyone the same. That would give each household just over £300. Compared to the freeze that’s a better deal for the bottom 6 income groups, about the same for some and worse for the richest 20 percent although they still get some benefit. Twice as much as the poorest get just now in fact.
#64 by R.G. Bargie on November 3, 2011 - 3:41 pm
A lovely idea, but what then? You’ve given everyone a cheque, everyone has a party, but now their Council Tax is going to start going up again. History suggests that in the real world it’ll go up by a lot more than 3% pa (especially with savage funding cuts coming from Westminster that need to be made up somehow), so everyone ends up worse off.
Unless, of course, you impose – I don’t know, some sort of cap or freeze? At which point you’re right back where you started.
#65 by James on November 3, 2011 - 3:45 pm
The poorest in society who rely on services provided by local authorities would be much better off in the scenario you describe and, importantly, local people through their democratically elected councillors would be setting their own levels of taxes and services.
#66 by R.G. Bargie on November 3, 2011 - 4:41 pm
Leaving aside whether that’s true or not (and I’m very far from sure that it is), I’m not sure you’d have a lot of luck selling the voters that as your council election manifesto.
#67 by R.G. Bargie on November 4, 2011 - 1:41 am
But as for the substantive point:
“The poorest in society who rely on services provided by local authorities would be much better off in the scenario you describe”
What does this actually mean? Are we suggesting that if, say, a cash-strapped council closes some libraries to save money, the poor have to spend more on private book hire? What actually ARE the services currently run by councils which are being cut and which the badly-off have to replace at their own expense?
#68 by Steve on November 4, 2011 - 10:57 am
In my kid’s School, classroom assistant provision is being reduced as a result of budget squeezes. That means kids are getting a worse education this year than last.
OK, that might not have an immediate financial impact on the kids or families affected, but given the SNP’s stated aim to take a preventative approach, I’d have thought reducing educational provision and therefore attainment is storing up problems for the future.
It’s the same with other cuts, eg to social services, there may not be a financial cost always to those getting worse services, but there is a quality of life and opportunity cost to the poorest, that often those with a bit more money can mitigate.
#69 by Doug Daniel on November 4, 2011 - 12:53 pm
Classroom assistants? Unless we’re talking about “the poor” being everyone who goes to a state school (it would be the first time I was ever described as “poor”), then any effect from a reduction in classroom assistants will be equally felt amongst any child that doesn’t go to a private school.
Besides which, I know someone who was a classroom assistant and was given her jotters fairly recently. Without trying to be mean (she’s a nice woman but she’s not exactly a giant of academia), the children are probably better off without her…