Alex Salmond, Scotland’s first minister, proposes that Scottish local
authorities be given 3p in the pound of income tax. His announcement
threatens to make the usually dreary issue of how we fund local government
explosive once again. It is a topic that for decades can lurk unnoticed like
a Luftwaffe bomb, then detonate with catastrophic consequences.
Foreigners sometimes ask how Margaret Thatcher, Britain’s most respected
postwar prime minister, finally lost her job. They scratch their heads in
disbelief when you explain that by changing the way we finance local
authorities she ensured her doom. The normally arcane question of town hall
funding had brought mobs on to the streets and caused buildings in Trafalgar
Square to be set ablaze in protest against her poll tax.
Local taxation has incendiary potential because, unlike other taxes, what we
pay is not related to what we earn or spend. That may seem anomalous, even
manifestly unjust, yet provided central government pumps sufficient subsidy
into town hall coffers, enabling local bills to be kept small, most voters
grumble and bear it. The pensioner widow, of political fable, somehow just
about manages to get by.
However, Whitehall occasionally gets too greedy. Over time, between crises, it
forgets that local government finance can blow up in its face. It squeezes
down the grants to local authorities. Local tax bills then rise to levels
intolerable for those on low incomes and political conflagration is
reignited.
Ironically, the poll tax was invented for Scotland. Scottish Tories devised it
to rescue the impecunious blue-rinse widow whose rates bill was based on the
soaring value of the large house in which, long before, she had brought up
her family. Had the Tories then simply increased the subsidy to Scottish
local government, they could have saved a lot of trouble and Thatcher could
have gone on and on.
John Major abolished the poll tax (surely the only example of a government
that introduced flagship legislation and then rescinded it in the space of a
single parliament). More important than the change in tax structure was the
enormous increase in grant paid to the town halls from the Treasury. Any tax
unrelated to ability to pay will work at low levels but fail if the bills
get too big. Since Labour has been in power, it has again connived to push
up council tax bills, unwary of the bitter lessons learnt by its
predecessors.
Thus the government has given Salmond his opportunity. Today local taxpayers
feel overburdened again, all the more so because utility bills have moved up
sharply, too. In Scottish politics Salmond performs with an elegance and
fluidity that make his opponents look elephantine, like a latterday George
Best weaving his way around the flat-footed defenders of a political Raith
Rovers. Since taking power in last year’s Scottish elections, Salmond has
seen off two leaders of Scottish Labour and defeated the government in its
Glasgow East stronghold in July’s by-election.
However, despite his popularity and success, as things stand now a majority of
Scots would probably vote against Scottish independence. With Salmond’s
Scottish National party committed to hold such a referendum in two years’
time, it has long been obvious that the first minister must engineer a
populist showdown with London by seeking extra powers for the Scottish
people.
With the proposal that in Scotland the council tax on property should be
replaced by a supplement of 3p on income tax, Salmond has found a perfect
subject to stoke up Scottish resentment.
Gordon Brown is working precisely to Salmond’s script. Although he hints at
allowing Scotland greater control over delegated revenues he refuses to
discuss local income tax and has threatened to slash funding to Scottish
local government. Given Brown’s poor start on this issue and Labour’s now
routine political ineptness, we could yet see a majority of exasperated
Scots voting for independence.
For, on the face of it, Labour appears unreasonable and hypocritical. What is
the point of devolution, the policy enacted by this very government, if
Scotland cannot decide even how its local government is paid for? Could
there be a more obvious case for devolved decision making?
The row reminds Scottish voters that Labour’s commitment to devolution was
always opportunistic and half-hearted. It created in Edinburgh a parliament
with severely limited autonomy. All the party’s leading Scots continued to
make their careers at Westminster because that is where they intended all
serious power to reside.
Labour – and the Conservatives – have manoeuvred themselves into the stance of
opposing taxation (at local level at least) based on ability to pay. It is
not an easy argument to sustain. Salmond has effortlessly cornered his
opponents and could be just a few moves from checkmate.
Brown and David Cameron both believe a rise in income tax, whether to fund
town halls or for any other purpose, would be politically disastrous. It
would indeed mean a substantial rise in the tax paid by earners. But Salmond
appreciates that in Scotland, with its larger proportion of benefit
recipients (the jobless and long-term sick), the political arithmetic is not
the same as in the United Kingdom as a whole.
His proposal cuts away at Labour support because it is redistributive towards
poorer voters. However, the Tories need to watch out, too, because it would
also help those widows in large houses, the core supporters for whom they
invented the poll tax 20 years ago.
The debate may well be confined to Scotland and to how it will shape attitudes
to independence there – but it should not be. If we altered the way local
authorities raise their money, we would change the nature of our country for
the better.
I became minister for local government just after the Thatcher government
introduced the poll tax to England, the year after the Scots had started to
pay it. I defended it then and later under Major I worked to scrap it and
replace it. Having thought hard about local government finance, I am
convinced that an income tax supplement must be part of any equitable local
tax system. I admit that earners would pay more and high earners much more,
but greater social justice is not a powerful argument against it.
More importantly, raising the money in that way would enable local government
to grow in scope and importance. By comparison with almost every country I
know, we suffer from chronically weak local government and from central
government that is too powerful. Decisions are made remotely, national
policies are imposed although they are inappropriate in most localities and
terrible amounts of public money get wasted.
At present local government is little more than an instrument of Whitehall. It
is dependent for most of its income on the Treasury which can therefore
dictate most of its policies. It simply cannot be otherwise for as long as
local authorities are forced to raise their money througha levy that is
unrelated to ability to pay.
Central government does not want local government to acquire extra competences
and the easiest way to block that is by maintaining an iniquitous system of
local tax from which only small amounts can be raised. Local democracy
scarcely exists if town halls merely take dictation from national
politicians. Unsurprisingly it attracts few characters of drive and
imagination. The shoddiness of British cities offers visual evidence that
they lack power and confidence. They are unable to take bold initiatives
like, say, Bilbao which attracted the Guggenheim museum and with it global
interest.
The leading parties are constantly searching for a big idea that could be
trans-formational. Salmond has hit upon it, admittedly for opportunistic
reasons. Sadly, neither Brown nor Cameron is willing to offend income tax
payers or risk competition from more effective city leaders.
Nor may Brown and Cameron immediately want to take advice from me. After all,
I once proclaimed that the poll tax would be the platform on which the
Tories would win the following general election. In my defence, even as I
said it I knew it was incredible.
Martin Ivens is away
