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An Outline of our Proposals
The Scottish Government believes that the Scottish people have the right to change the way local authorities are funded from local taxation and also to change the nature of that local taxation. That is why the current Government stood for election with a clearly stated proposal to abolish the council tax and replace it with a fairer local tax based on ability to pay. This consultation is the first part of making that proposal a reality, and we are asking for your views. Our proposals for a new local taxation system to fund local authority expenditure include:
- A tax free personal allowance that matches the UK personal allowance levels
- A 3% rate applied to the income that is subject to basic and higher rates of UK income tax
- Collection that complements the existing national system of collection through Pay as You Earn ( PAYE) and self assessment
- Exemptions for savings and investment income
- A tax for second homes, which will be subject to local requirements, and broadly comparable to the current council tax on second homes.
We will seek UK Government cooperation in administering a local income tax. We want to deliver these reforms as quickly as possible and within the term of the current Scottish Parliament. This will be a challenging task, but with the cooperation of the UK Government, we can achieve the implementation of the proposals outlined in this consultation document.
For 2007-08, we estimate that under our proposals households would on average be better off in all but the top income decile, although it is important to note that the impact on individual households will vary according to their particular circumstances. The table below shows weekly earning bands for each income decile.
Weekly Earning Bands for Income Deciles (2007-08)
Bottom 10% | < £164 |
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Decile 2 | £165 - £206 |
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Decile 3 | £207 - £256 |
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Decile 4 | £257 - £309 |
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Decile 5 | £310 - £379 |
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Decile 6 | £380 - £455 |
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Decile 7 | £456 - £558 |
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Decile 8 | £559 - £680 |
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Decile 9 | £681 - £901 |
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Top 10% | > £902 |
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Annex F also provides a detailed analysis of how our estimates were derived and further evidence of the impact of the proposals.
Table 1 (below) shows the results across each income decile rounded to the nearest 10 pence and as a percentage of households' after tax income.
Table 1- Average weekly change in net income for each income decile
Income Decile | Bottom 10% | Decile 2 | Decile 3 | Decile 4 | Decile 5 | Decile 6 | Decile 7 | Decile 8 | Decile 9 | Top 10% |
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Average Weekly Change (£) | £6.70 | £6.80 | £8.10 | £8.80 | £10.30 | £9.70 | £6.90 | £6.00 | £0.90 | -£15.10 |
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Change as % of after tax income | 5.7% | 3.7% | 3.5% | 3.1% | 3.0% | 2.3% | 1.4% | 1.0% | 0.1% | -1.2% |
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Table 2 shows the estimated average weekly change in net income according to seven family types.
Table 2 - Average weekly change in net income by family type
Family Type | Single non-pensioner | Married without children | Married with children | One-parent families | Single pensioners | Married pensioners | Households comprising "Multiple Taxpayers"* |
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Average Weekly Change (£) | £3.30 | £3.40 | £3.10 | £5.40 | £7.30 | £13.80 | £2.50 |
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Change as % of after tax income | 1.1% | 0.5% | 0.5% | 1.7% | 3.3% | 3.4% | 0.4% |
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*Note: Households comprising "Multiple Taxpayers" (also known as Multiple Tax Units) involve a number of different household types, the main of which are - young adults living together, adult children living at home with parents and parent(s) living with their adult children.
Responding to our Consultation
There is no need to answer each question as it arises in the consultation paper itself. All the questions are listed in order in the final Annex to the consultation paper ( Annex H) and you can therefore respond to them together by completing Annex H at the end. There is also an online response form at www.scotland.gov.uk/afairertax.
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