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Section 3 - What will be the Impact of a Local Income Tax on our Economy and People?
32. This section discusses some of the potential wider impacts of our proposals to abolish the council tax and introduce a local income tax.
Economic impacts
33. Over the three decades since 1975, Scotland's economic growth averaged 1.8% while the UK average was 2.3%. Between 1997 and 2006, Scotland's growth trailed the UK average in 9 out of 10 years. A reduction in taxes through the abolition of the council tax has the potential to provide a stimulus to the Scottish economy and contribute positively towards the Scottish Government's aim to make Scotland a 'Wealthier and Fairer' place.
34. Our modelling of the impact of our proposals indicates that most people in Scotland will be better off under our proposals. We estimate that 4 out of 5 households will be better or no worse off. In terms of income deciles 1, we estimate that on average, people in all income deciles will be better off, apart from those in the very top income decile. We also expect that on average, all the family types we have modelled will be better off. This means that we expect most single pensioners, pensioner couples, couples, couples with children, single people and one parent families will all be better off. (See Annex F for more detailed information on this topic.)
35. Some have suggested that a local income tax will lead to richer people leaving Scotland to live elsewhere in the UK, leading to lower tax revenues for Scotland than we have forecast and other negative economic impacts. However, the proposed local income tax will only increase the tax burden for a minority of people and a 3% local income tax will not have a significant impact on many of these people. People decide where to live for a variety of reasons, and we believe that the fairer and wealthier Scotland we are building will create an environment where our citizens will want to stay.
Work choices
36. Changes to taxation can result in people making different choices about their work, such as changing the number of hours they work each week. These choices have an impact on peoples' quality of life, as well as the overall size of the workforce, and the total tax revenue collected. In particular high rates of income tax may result in people working less. Our assessment is that the local income tax is unlikely to cause people in Scotland to change their current working patterns. We know that most people will be financially better off under our proposals for this new low rate of tax.
Impact on Democracy and Accountability
37. The abolition of the locally set council tax and its replacement with a nationally set local income tax may be seen by some as reducing local democracy and accountability. We do not agree that this is the case. Politicians are accountable to their electorate through the proper democratic process, based on the decisions they make. Locally elected officials will continue to decide how funding for their area is spent and make locally devolved decisions affecting the welfare of their constituents. Clearly alternative proposals such as a locally variable rate of local income tax will have an effect on this issue.
Equality Considerations
38. Equality is about creating a fairer society where everyone can participate and has the opportunity to fulfil their potential. No one should be denied opportunities because of irrelevant differences. The Scottish Government wants to make sure that we do not make tax changes that will unfairly impact on people simply because of their race or ethnicity, their disability, their gender or sexual orientation, their age or religion.
39. The Scottish Government, along with all public bodies, is subject to a number of legal duties relating to equality, and we will of course make sure that we comply with these.
40. We will undertake a full equality impact assessment of our proposals and report our findings to the Scottish Parliament as part of the legislation to bring about these changes. Assessing the likely impact of our proposals will involve collecting and analysing data, considering adaptations to the policy because of any negative impacts, and putting in place monitoring arrangements.
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