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EXECUTIVE SUMMARY

Background overview

1 The consultation "A fairer local tax for Scotland" was published by the Scottish Government on 11 ^th March 2008 and ran until 18 ^th July 2008.

2 Findings from the analysis of consultation responses will feed into the work currently being undertaken by the Scottish Government.

3 The consultation invited views on the following proposals:

• a personal allowance which mirrors the current UK income tax allowance;
• a single tax rate of 3% on all income over the personal allowance;
• collection through the existing systems by Her Majesty's Revenue and Customs ( HMRC);
• that there should be no exemptions or discounts, although income from savings and investments will not be taxed;
• that there should continue to be a tax on second homes.

OVERVIEW OF RESPONDENTS

4 A total of 516 responses to the consultation were received, comprising 430 responses from individuals (83% of the total number of responses) and 86 from organisations (17% of responses). Given the primarily self-selecting nature of any consultation exercise, it should be noted that the statistics quoted in this report cannot be extrapolated to a wider population outwith the consultation population.

5 The majority of individual respondents (418 out of 430) submitted their responses using the consultation questionnaire; the other 12 submitted free-flowing responses in the form of letters, emails or reports. Quantifiable data is available for the 418 who completed the consultation questionnaire. Of these 418 respondents more men than women replied to the consultation, classification information shows:

• 64% of respondents were men and 30% women;
• 1% of responses were joint submissions from couples;
• 5% chose not to give details of gender;
• almost half of individual respondents (47%) were in full time employment;
• over half (56%) gave their marital status as married;
• 10% reported a health condition or disability.

Where differences in opinion exist between classification sub-groups these have been reported.

6 Thirty-nine out of the 86 organisational responses responded to some or all of the questions posed in the consultation and some data is available for these respondents. The remainder submitted free-flowing documents, mainly in a report format. Among organisational responses, the largest number of responses received was from the local government sector; 25 responses were received from local authorities or other local government organisations. Other submissions came from a range of organisations types.

OVERVIEW OF RESPONSES

7 Individuals and organisations agreed on a number of issues. Results showed:

- Over half of both individuals and organisations voiced support for the local income tax personal allowance staying the same as the UK income tax personal allowance; 56% of individuals were in favour of this proposal while the main comment identified in organisational responses was that the level should remain the same.

• There were differences in opinion across age ranges amongst the 418 individuals with those aged 55 to 64 (71%) and 65 and over (68%) more likely to support the level remaining the same. This compares to 53% of 18 to 34 year olds, 47% of those aged 35 to 44 and 54% for the 45 to 54 age range.
• Amongst organisations, 44 out of the 86 responses contained comments in support of the allowance remaining the same as the UK level. Two made specific alternative suggestions, both for a higher level of allowance. None of the other organisations responding explicitly documented support or opposition for this proposal.

- The majority of individual respondents (64%) were in favour of retaining the definition of a Scottish taxpayer already contained in the Scotland Act. There was widespread agreement amongst organisations who dealt with this issue in their responses that this definition is suitable.

• Those individuals who disagreed with the use of the definition were asked for alternative definitions and the main ideas suggested were: anyone owning property in Scotland (17% of those who disagreed) and anyone living/ working in Scotland for more than half the year (13%).
• Organisations, while mainly agreeing with the definition, also raised some concerns, mostly over the potential for avoidance of local income tax.

- The majority of individuals (55%) did not see the need for transitional arrangements and 15% said that these should be considered. Of the 22 organisations giving a direct response, 17 said there should not be transitional arrangements while 5 felt that there should be.

• Individual respondents in the age range 55-64 were least likely to support transitional arrangements with just 7% in favour. This compared to at least 12% in other age ranges.
• The qualitative responses received from organisations revealed polarised views. Whilst 7 organisations made comments in favour of transitional arrangements, comments from 8 others suggested that they disagreed with this approach.

-HMRC was the preferred choice to collect a local income tax; both the majority of individuals (60%) and those organisations providing a direct answer (27 out of 30) supported collection by HMRC.

• The data on the working situation of individuals shows retired respondents were most likely to want local income tax collected by HMRC (76%) but over one in 5 (22%) employed or self-employed respondents said they would like to see collection by local authorities.
• Responses from 21 organisations who commented more fully on this question also showed agreement for HMRC being responsible for collecting local income tax although 8 organisations queried whether they would be willing or able to fulfil this role.

- The majority of individuals (62%) felt local income tax should be collected at source and 26 organisations who commented on this issue agreed.

• Roughly the same numbers of individuals wanted to see local income tax collected through payment (15%) as through a combination of collection at source and payment (14%).
• Twenty-one organisations indicated support for a combination of collection at source and payment.

- Both individuals and organisations felt money raised through a local income tax should be distributed to local authorities based on need as opposed to population or the amount of local income tax raised in each area.

• Individual respondents were free to make multiple suggestions and the main answers given were: need (41%); the amount of local income tax raised in each area (33%); population in each area (21%).
• Looking at the data from organisational responses, 12 gave specific answers although many more debated the pros and cons of each method. Data from organisations shows support for distribution by: need (9 organisations gave this specific answer); the amount of local income tax raised in each area (3 organisations); population in each area (one organisation).

- The majority of both individuals (51%) and organisations (8 out of the 14 who provided a direct answer) agreed that Scotland should retain monies equivalent to council tax benefit. Twenty-two percent of individuals disagreed as did 4 of the 14 organisations. Comments from 13 other organisations also showed agreement with this proposal and these organisations felt that negotiation between the Scottish Government and the UK Government would be essential in order for these issues to be resolved.

- The majority of both individuals (51%) and organisations (21 out of 23 who answered this question) agreed to some extent that local authorities should play a part in setting a second home tax; although there was some concern from organisations over how second homes would be identified.

• Just over a third of individuals (34%) disagreed to some extent that it is important for local authorities to play a part in setting a second homes tax.
• One organisation disagreed (strongly).

- At least half of the 418 individual respondents felt advice for employers should include an information booklet for employers (69%), a website with a section of frequently asked questions (63%) and a designated advice hotline (56%). Data from organisations shows 8 out of the 14 who supplied an answer voiced support for a designated advice hotline, 7 were in favour of an information booklet for employers and 6 supported a website with a section of frequently asked questions. Most organisations who provided commentary (15) thought that all of the suggested methods of support would be necessary to support employers in implementing the proposals.

8 The responses to some of the questions in the consultation document showed a difference of opinion between organisations and individuals:

- Around half of individuals (49%) thought a 3p tax rate about right; 16 organisations gave a direct answer on the proposed 3p rate and their opinion was split.

• There were differences of opinion amongst different age ranges with those under 55 most likely to comment that the rate is too high. At least 38% of those aged under 55 felt the rate was too high compared with 8% of those aged 55 to 64 and 3% of those aged 65 and over.
• Of the 16 organisations who gave a direct answer, 8 felt it would be too low while 7 thought it about right. In 30 out of the 86 organisational responses the main theme to emerge was that a 3% rate would result in a shortfall or funding gap.
• Organisations used a variety of sources to produce shortfall estimates. A number of organisations commented that they would have liked more detail especially in relation to estimates of receipts from local income tax, accurate figures on the projected shortfall in funding and on how any shortfall would be addressed if council tax benefit is not provided.

- The majority (57%) of individuals supported a nationally set tax rate while just over a third (34%) wanted a locally set level. Of the 25 organisations giving an answer on this subject, the majority (16) wanted the rate to be set locally while 9 said nationally.

• Of those individuals who answered 'locally', 70% felt that Scottish Ministers should be able to cap the rate.

- Over three-quarters of the 418 individual respondents (79%) wanted to see tax levied on earned income with almost as many (72%) in favour of tax on income from second homes. Organisations who commented on this area of the consultation considered that all forms of income should be taxed; this was mentioned by 9 organisations.

• Individuals were split on whether pensions (48% in favour) or financial investments (47% in favour) should be taxed. 30% supported tax on savings.
• Looking at support for specific types of income amongst organisations shows 25 organisations in favour of taxation on earned income, 23 would like to see taxation on income from financial investments and the same number support taxation on income from second homes. Twenty-two showed support for taxing income from pensions with 19 in favour of tax on income from savings.

- Half (50%) of the individuals responding did not see the need for any exemptions or discounts while 31% felt that there should be. Organisations mentioned various groups who, they felt, should be eligible for discounts or exemptions.

• Individuals in the 18 to 34 age range were more likely (51%) and those in the 65 and over age range were least likely (23%) to say there should be discounts. Those who reported a health condition were slightly more likely to support exemptions or discounts (38%) than those without a health condition (31%).
• • Those individuals who indicated that there should be exemptions or discounts were then asked who these should apply to and how this should be funded. The top three groups mentioned were; pensioners (24% of those individuals who felt there should be discounts); disabled/ those with long term illness (15%); low paid/ low income/ low earners (13%). Ideas for funding exemptions or discounts included adjusting local income tax rates (6% of those individuals who felt there should be discounts); applying local income tax to other areas (4%); more tax on those with higher incomes (4%).
• Responses from those organisations who commented on this part of the consultation indicated that a number of organisations consider there should be special exemptions or discounts from a local income tax for those individuals who currently receive council tax benefits (either directly or indirectly) who would not have a corresponding income tax benefit.
• • The following candidates for exemptions or discounts were mentioned by organisations: students (8 organisations); families receiving tax credits (5 organisations); older people/ pensioners (3 organisations).

- Almost half (48%) of individual respondents did not see the need for local authorities to have the power to set a tax, whereas 17 out of the 23 organisations who answered directly were in favour of this proposal. Thirteen other organisations commented on this issue; their responses indicated support for local authorities to have the power to set a tax.

- Slightly more individuals (36%) were in favour of tax on second or empty homes being collected by HMRC than collection by local authorities (34%). Organisations favoured collection by local authorities; in total we identified comments from 34 organisations supporting collection by local authorities.

- When asked whether the introduction of a local income tax would have positive economic benefits for Scotland, there was a fairly even split amongst individuals with 44% saying yes and 42% no. There was some concern from organisations, especially over the possibility of tax migration, with 18 of the 86 organisations commenting on the possibility of a local income tax encouraging people to leave Scotland.

• Individuals in the 55 to 64 and 65 and over age ranges were most likely to agree (68% and 55%) that the introduction of local income tax would have positive impacts for Scotland; those aged 45 to 54 were least likely to agree (20%). Single people were more likely to agree (56%) than married or cohabiting couples (39% each).
• Twelve organisations gave a direct answer to this question; 5 said that it would have positive economic impacts, while 7 felt it would not.

9 When discussing opinions on various methods of taxation there were, again, differences of opinion between individuals and organisations:

- Over half (55%) of individual respondents saw local income tax as the fairest approach to taxation, 25% felt that council tax was the fairest approach. Organisations tended to discuss the merits or drawbacks of each method of taxation; of the 16 who gave direct responses, 10 voiced support for a local income tax and 5 supported council tax.

• There were differences in responses from individuals across age ranges. While 53% or more of the age groups 18 to 34, 55 to 64 and those aged 65 and over selected local income tax as the fairest option, 34% of those aged 34 to 44 and 45 to 54 agreed.
• Looking at those individuals who identified council tax as the fairest option; 40% of 34-44 year olds and 43% of 55-64 year olds selected council tax as the fairest option compared to 25% overall.
• Single people and married couples favoured local income tax as the fairest option (63% and 67%); data from co-habiting couples shows an even split between local income tax and council tax (both 39%).

- Forty percent of individuals thought that a local income tax would provide a wealthier Scotland; 21% said council tax. Few organisations commented on this issue; of the 9 organisations who gave a direct answer to the consultation question on which approach would provide a more wealthy Scotland, 7 specified a local income tax while 2 chose council tax

10 There were a number of questions which few organisations responded to as they felt these were targeted at individuals; responses came mainly from the 418 individuals who replied to the consultation questions:

- Few individuals would be willing to pay more income tax to provide for better quality public services, over half (59%) of individual respondents said that they would not pay more while 30% said that they would. Only a small number of organisations commented on this issue as they felt it was a question for individuals.

• Again individual responses showed differences in the answers given across age groups with those aged over 55 more likely to say that they would be inclined to pay more local income tax to provide for better quality local services. The following numbers said that they would be inclined to pay more:
• • 32% of 18 to 34 years olds;
  • 20% of 35-44 year olds;
  • 23% of 45 to 54 year olds;
  • 44% of those aged 55 to 64;
  • 41% of those aged 65 and over.

- More than half (56%) of the individual respondents said that the tax rate would influence their decision to live in Scotland to some extent, with 38% saying it would influence them a lot and 18% a little; 43% said that it would not influence them at all. Few organisations gave a direct response as this was seen as a question primarily for individuals; of the 11 organisations answering, 3 said it would affect their decision 'a lot', 2 said 'a little' while 6 said 'not at all'.

• Looking at the profile of those individuals who said that the tax rate would influence their decision to live in Scotland 'a lot' shows that this opinion is most prevalent amongst those aged 45 to 54 years (62%), the employed or self-employed (47%) and single people (46%). Least likely to be influenced 'a lot' are those aged 65 and over (21%) or respondents describing themselves as retired (18%).
• Twenty organisations provided comments on the potentially negative effects of a local income tax on living, working or running a business in Scotland.

- When asked whether the introduction of a local income tax would have an impact on their work patterns, almost half (42%) of individuals said that it would not; a fairly high percentage (29%) did not give an answer. Again, this question was seen as more relevant to individuals and there were very few responses from organisations on the impact of local income tax.

11 Some questions attracted few responses from either individuals or organisations:

- There were few comments from either individuals or organisations to the open question on accountability and democracy.

• The main theme to emerge from individual responses on the subject of accountability and democracy was a general agreement that that there should be local accountability (13%); 10% mentioned a negative experience of local authorities handling tax or finance matters.
• Organisations had already commented on this issue in relation to local authorities having the power to set a tax.

- There were few comments from either individuals or organisations on equality issues.

• The main issues identified in responses from individuals included: agreement with proposals, that they are fair or will increase equality; that there would not be equality as proposals have not catered for equality issues; the proposals would have no impact on equality issues; the proposals penalise workers or the employed; local income tax will benefit or favour those who choose not to work.
• Only a small number of organisations provided specific comments about the impact of the proposals on equality issues. Two organisations which did comment saw no specific equality issues to address and felt local income tax would not affect any one group more than another.

12 Overall views on the introduction of a local income tax included the following:

- Many organisations provided comments in free-flowing format and while some voiced specific views on local income tax, in many cases it was not always obvious whether they supported or opposed proposals. In these cases respondents presented both viewpoints e.g. their assessment of the positive and negative aspects of the suggested approaches to taxation. We noted the following level of support or opposition to local income tax;

• opposed to local income tax (15 out of 86 organisations);
• support for local income tax (14 organisations) - 3 made provisos; that there be exemptions for students and that the rate should be set by local authorities;
• concern about the implementation of local income tax as set out in the proposals (14 organisations);
• support for council tax (2 organisations) or for revising council tax (7 organisations);
• not convinced by the proposals (4 organisations);
• support for other methods of raising revenue (3 organisations).

- When asked what would be the most significant factor for them if local income tax were to be introduced, 41% of the 418 individuals answered that a local income tax would be fairer than council tax; just over a quarter (27%) said that they or their household would be worse off under a local income tax. The key theme to emerge from organisational responses was that more information and specific details would be required before a decision could be reached.

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