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that introduced flagship legislation and then rescinded it in the space of a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
It's a pity that Portillo is so used to undemocratic, unprincipled oily politicians that he can't recognise a genuine political principle when he sees it. All Tax should be based on income and the SNP have worked on this policy for many years.
Joe Middleton, Edinburgh, Scotland
It is not taxation, it is expenditure. The govt disposes of money which we are made,by law, to give them.
For at least the last five years Mr Brown has bribed the electorate. Now he is in a mess and he can no longer "pass the buck"
Luckily for him the rest of them in NuLabour are unemployable.
Peter Bolt, Redditch, UK
Local taxation should be a flat rate percentage of total income with a big exemption of some £15,000 set to defuse a repeat of the poll tax riots and let inflation do the work of including more and more people as the years go by. It would be so much easier and cheaper to administer and understand.
R Mason, London, UK
Get it right - it was not THE poll tax. It was A poll tax. Just like the BBC licence fee is.
Council taxes, based neither on ability to pay nor benefit received are iniquitous while many pay nothing.
Tom W, cheshire,
The most important thing he does not mention is that local politics has very low turnout because people think there vote does not matter therefore we need two things ...first proportional representation second elected council and police chiefs.
Peter, Yorkshire,
Easy solution to the local tax debate. Put up income tax by 3p or whatever is needed then give the local authority so much per capita to spend. That way everybody pays what they can afford rather than the current way of taxes being based on the value of property irrespective of the resident's income
ian , Maidstone,
Local income tax shd be used to fund local services everyone can/does use: refuse/community buses/libraries/leisure. Services (schooling, elderly care) not used by all shd be funded centrally so national provision is equitable. Then local income tax wld better reflect needs of the local community.
Donna Walker, Effingham, England
Abolishing C-Tax would be cheaper because you wouldn't have to pay an extra army of collectors and pursuers, nor would you have to pay estate agents to guess the value of your property, nor snoopers to see if you live alone and to count your garage. Alex Salmond come to England!
John Ledbury, Kings Lynn, England
"For things to be fair, you should contribute in taxes in proportion to the the cost/amount of services that you use."
Er, so the wheelchair bound pensioner on very little income who needs a great deal of support from social services would be paying more than they can afford - is that what you mean?
John Hall, Kaarina, Finland
In Switzerland, local (county) taxes exceed central (Bern) taxes by a factor of about 7/1. Shows what the Swiss think of their central politicians (Bundeshaus)!
The Swiss system allows tax payers to see what they are getting locally (schools, welfare....) for their tax money.
E.Newson, Schaffhausen, Switzerland
Council Tax is on property, property is wealth, so it is a wealth tax. The UK now barely taxes other wealth so this leaves only legal income and transactions. This is not enough hence sharply rising government borrowing and fancy finance. There are some ugly choices to be made for any government.
Tom, Maidstone, UK
On the whole I agree with both MP's and AS's proposals except that local goverment is so intrinsically inept in so many areas that I do not think that any boldness or imagination can be developed for a generation. Now councils are less democratic, more authoritarian and more unaccountable.
Bob, Middlesbrough,
"Margaret Thatcher, Britain's most respected postwar prime minister" - and of course, most despised.
Ken Leyland, Liverpool, U.K.
But now displaced as most hated, despised and incompetent by one Gordon (Calamity) Brown
m. cawdery, Portadown, Co. Uk EU
If the Tories really belive in restoring freedom they must re-empower local government.The first tep in doing this is to allow them to raise more of their own revenue locally. Then when properly funded the rundown cities and large towns of the UK will stop being places no-one wants to live in.
R G James, Brasschaat, Belgium
All very true Michael but if the SNP wins a majority of Scottish seats at the General Election, as some predict, the Scottish Govt will not need to call a referendum in 2010. The MPs will be entitled to open negotiations for independence. The only referendum will be to accept or reject the terms.
Ian Campbell, W Horsley, England
An interesting and thought provoking article. Thanks Michael.
Personally, I am opposed to Local Income Tax due to it removing local accountability - which is of course why the socialist SNP support it - they support the centralisation of all tax monies in Scotland.
Douglas Newell, Saltcoats, UK
For things to be fair, you should contribute in taxes in proportion to the the cost/amount of services that you use.
John Norman, London, UK
The poll tax had the virtue of taxing based ion occupancy and use of services - but it was hideously regressive. Surely the solution is to combine a low level poll tax with local income tax. Should local authorities then be able to vary that local income tax within pre-defined boundaries?
Richard, Worcester, England
As a direct rate payer in Mancheter (Business Rate) but being resident in Derbyshire I remember years of having to pay a tax set at a rate fixed by people over whom I had no electoral influence.
There was a strong temptation to throw tea chests into the Ship Canal.
"No taxation without ... etc"
Stephen Green, Correns, France
Aboslutely agreed - excellent article. Let the Scottish experiment - if it goes pear shaped we can all learn the lesson. I suspect it won't and we can then adopt it as a UK policy. It even hits the poll tax buttons - households with lots of earners pay more tax.
Richard, Newton Abbot,
In the US you pay a small state tax on vertually everthing you buy so the more you spend the more you contribute but everyone pays something towards state funding and this is how it should be. There are to many people in this country recieving money for which they have made no contributions.
Dave, Mold, UK
Michael is missing a big point about local taxes. They should be SET locally. Otherwise central control continues. True fiscal control means spending AND tax.
Salmond is proposing independence, so Scotland would set its own taxes. To counter that we that we must offer regional/local tax raising.
Peter Kellow, Lesneven, France
I recall that when John Major abolished the poll tax, he raised VAT by 2 1/2 per cent to 17 1/2 per cent to pay for the abolition. We're still paying the extra - rich, poor and destitute alike. No idea where it goes.
Helen Barker, Horsham, UK
Perhaps one solution would be local taxes on purchases similar to Canada and America. Either by county or devolved country.
PB, Anglesey, Wales
Give Local Authorities the power to raise local taxes and to keep local taxes. Business Rates go to Central Government. But the biggest pain, is the millions of Civil Servants who administer small pots of money for which town halls compete. Cut that cost and grants to town halls can increase.
Frank Keegan, Alderley Edge,
An excellent way to ensure increased emigration of those who pay the taxes, leaving only the feckless behind.
Morvan, Saulieu, France
"Margaret Thatcher, Britain's most respected postwar prime minister" - and of course, most despised.
Ken Leyland, Liverpool, U.K.
I recollect that it was Geoffrey Howe's electrifying Commons speech where he referred to Mrs Thatcher's "background noise" and "breaking the team's (cricket) bats before the game" in negotiations with Europe what dun for her. Not very respectful.
Bob T, London, UK
It's about time we had that here in England. Half by Income Tax the rest by VAT much fairer. MP dont take notice because most have it paid. Local taxation would by competition be kept low
James , Brighton, England
Try hard and achieve in education, get a middle income job and then you, too, can be rewarded by paying a big chunk of your earnings in tax to subsidize seemingly everyone else. Why stop at council tax? I'm sure taxpayers might also fund TV licences, satellite subscriptions, fuel and food bills.
Andy, Milton Keynes, UK
the most unjust tax is VAT, the only people it hits is the poor. if your on £50k a year im sure you dont feel paying an extra £50 quid for a tv, but imagine if your on the miminum wage or something and wanting to buy an xbox for your kid.
but then were massively overtaxed in everything arent we
will, grimsby, uk
Poll tax, in it's originally proposed form, would have been much fairer. Unfortunately, the Thatcher Government got greedy, and set the charges to raise THREE TIMES the previous amount of revenue.
Had the Poll Tax been applied FAIRLY, most people would have approved.
Clive Burghard Southern, Lancing, ENGLAND
Why does the idea persist that Income Tax is related to ability to pay? Anyone who believes that must be too poor to afford a decent accountant. Taxes on labour are a disaster. They add to the cost of employment. And they result in a deadweight loss to the economy of 12% of GNP.
Henry Law, Gothenberg, Sweden