The Scottish Government

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Plans to scrap council tax published

11/03/2008

The vast majority of Scots will be better off as result of the abolition of council tax and a move to a fairer system based on the ability to pay, Finance Secretary John Swinney said today at the start of a public consultation.

More than four out of five households will be better or no worse off under Government plans for a local income tax.

He insisted that the proposals will mean the biggest tax cut in Scotland in a generation with those on low and middle incomes better off by an average £350 to £535 a year.

Under the Scottish Government's proposals, on average:

• Single pensioners will be better off by £7.30 a week
• Pensioner couples will be better off by £13.80 a week
• Couples without children will be better off by £3.40 a week
• Couples with children will be better off by £3.10 a week
• One parent families will be better off by £5.40 a week
• Single people will be better off by £3.30 a week
• Households with multiple taxpayers will be better off by £2.50 a week
• Only the top income decile will, on average, pay more

Mr Swinney said:

"The proposal to scrap the council tax and replace it with a local income tax represents the most progressive overhaul of Scottish taxation in years and real help for hard-pressed taxpayers. This reform is designed to offer most help to those on low and middle incomes and represents the biggest tax cut for a generation.

"Working with councils, we have already delivered a council tax freeze that will shelter vulnerable households from further increases - but the system is fundamentally wrong. Band D council tax has risen by 60 per cent since 1997. It is time for a new approach.

"Today I am launching a four month consultation on the introduction of a local income tax. This new system will be the most significant improvement in local taxation this country has witnessed.

"The council tax is unfair, regressive and penalises people on low incomes. The people of Scotland will be better off paying a fairer, local income tax, based solely on the ability to pay. More than four out of five households will be better off or no worse off under our local income tax."

The consultation proposes:

• A 3 per cent rate of tax applied to the income that is already subject to basic and higher rates of UK income tax
• A tax free personal allowance that matches the UK personal allowance levels
• Collection that complements the existing national system through Pay as You Earn (PAYE) and self-assessment
• Exemptions for savings and investment income
• A tax for second homes, subject to local requirements and with flexibility for councils to determine the rate of tax. It is proposed this will be collected by councils

Mr Swinney added:

"This is a central part of our social democratic contract with the people of Scotland. Only the top income decile will, on average, pay more. The vast majority will be better off and the local income tax will benefit most those earning the least. Those earning the very least will see an average 5.7% weekly increase in their income. Most households will pay less tax and we will put more money back into people's pockets.

"These proposals represent a reduction in the tax burden on Scotland. That will be welcomed across Scotland and is key part of our plans to create a wealthier and fairer nation.

"Everyone will be affected by the abolition of the council tax and I want to hear people's views. We cannot deliver this in isolation, and we will listen to the people of Scotland before acting on our proposals.

"The Scottish Parliament has already voted in favour of the principle of abolishing the council tax. It is now our job to inform people of our proposals and build support needed to make a fair local tax a reality."

The consultation runs until Friday July 18.

Hypothetical households to illustrate the effect of introducing a Local Income Tax in 2007-08