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CHAPTER FOUR: LOCAL ISSUES

TAX AND LOCAL SERVICES

4.1 Paying a higher rate of local income tax would result in additional funds being available for local authorities for the provision of local services. The consultation asked whether people would be willing to pay more than 3% if this would result in better quality local services.

Chart 4.1
Question 3 - Would you be inclined to pay more local income tax (i.e. above 3%) to provide for better quality local services?

Base: Individuals (418)

Individual responses

4.2 Chart 4.1 shows that over half (59%) of individual respondents would not pay more local income tax in order to provide better quality local services; less than a third (30%) said that they would while 11% did not know or did not reply. Again there were 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.

4.3 In addition, while a third of males (33%) said yes, 26% of females said that they would be inclined to pay more. There were also differences in opinion across household types with 27% of single people and 30% of married couples saying yes compared to 45% of cohabiting couples. It should be noted, however, that the base sizes for single people (41) and cohabiting couples (38) are small in comparison to the base for married couples (233).

4.4 In examining the free-flowing individual responses, 4 out of 12 respondents commented on paying more for better quality services, with 2 voicing concerns over local democratic issues in a tax that is meant to be set centrally; one arguing that the ultimate LIT rate must inevitably exceed 3p, and one querying the wording used in the original question.

Organisational responses

4.5 Question 3 "Would you be inclined to pay more local income tax (i.e. above 3%) to provide for better quality local services?" was seen by many organisations as a question for individuals to answer and therefore they did not provide a specific answer or comment.

4.6 Eight organisations gave a quantifiable response and this was polarised with 4 'other' organisations saying yes and 3 'others' and one from local government saying no.

4.7 One local government organisation referred to the nature of the question stating "this is subjective and the answer will depend upon the circumstances of the individual, the local authority and the prevailing financial and economic environments".

4.8 Two tax, pay or finance organisations did, however, observe that whilst local income taxes are based on ability to pay, it does not match taxation to the use of services and hence may be observed as introducing unfairness. For example, some people will pay more while others will claim not to use local services and thus be unhappy about paying more than the minimum.

4.9 One retail/ business organisation stated "the rate should not be increased above 3% - giving local authorities more money is just as likely to lead to waste and inefficiency as to improved services".

WHO SHOULD SET THE LEVEL

4.10 Although, as the consultation document explains, local authorities could be given the power to set a local income tax rate for their own area, and to vary this rate within a specified range, the Scottish Government feels that this would lead to additional bureaucracy and expense. The consultation therefore proposes that the rate be set nationally by the Scottish Government.

Chart 4.2
Question 4a - Do you believe the level should be set locally or nationally?

Base: Individuals (418)

Individual responses

4.11 When asked "Do you believe the level should be set locally or nationally?", as shown in chart 4.2, over half (57%) of individual respondents agreed that the rate should be set nationally. Just over a third (34%) wanted a locally set level while 9% did not reply or said 'don't know'.

4.12 Those answering 'locally' at question 4a were then asked whether Scottish Ministers should be able to cap the rate and, as shown in chart 4.3, 70% of these said that they should. Just over a quarter (26%) said that Scottish Ministers should not be able to cap the rate; 4% said they did not know or did not reply.

4.13 Three of the free-flowing individual respondents took account of this question on responsibility for setting of tax, with one specifically arguing for local setting and one questioning whether it could still be referred to as a local tax if it were to be set nationally. The third individual expressed little confidence in the ability of local governments to be properly accountable for such a scheme if implemented.

Chart 4.3
Question 4b - If you believe the level should be set locally, should Scottish Ministers be able to cap the rate?

Base: Individuals answering 'locally' at Q4a (141)

4.14 One free-flowing comment from an individual addressed the issue of capping requesting that the rate of taxation should not be capped on the grounds that such a ceiling might undermine relations between local and central governments.

Organisational responses

4.15 Twenty-five organisations answered question 4 with 16 (10 from local government, one tax, pay or finance and 5 others) saying that the level should be set locally and 9 (one each from local government and tax, pay or finance and 7 others) that it should be set nationally.

4.16 Of the 16 who felt the level should be set locally, 11 (9 local government and 2 others) did not agree that Ministers should be able to cap the rate; the other 5 did not give an answer.

4.17 Comments from free-flowing organisational responses which discussed this issue indicate that many feel a locally set tax is critical to the accountability of local government. Comments in support of this view came from 11 local government organisations, one political organisation, one tax, pay or finance organisation and one representative group. The following 3 quotes illustrate typical responses:

"The greatest benefit from making local authorities more responsible for raising their own revenue is that it will help to improve the performance of councils. With greater financial control comes greater room for manoeuvre in the provision of services. Greater autonomy will lead to much greater diversity in the provision of services. Councils will not only have a better idea of the preferences of the public, but would also have more freedom to experiment with different ways of providing services so they can discover what works best for their area".

(local government organisation)

"If local income tax is adopted it should be set locally, with full responsibility remaining with the local authority. If not, councils will lose both the budgetary flexibility and the local accountability inherent in the current system. If a local income tax is not set locally, it then defaults to a "national" tax, where the only determinants of each council's share are the factors which influence the distribution of Government Grant. This would therefore remove any local control from funding".

(local government organisation)

"The advantage of having a rate of local income tax set by each local council is that there remains a level of accountability and democratic attachment to local public spending. If there was to be a fixed rate of local income tax across Scotland then the current link between the electorate and local government policy and expenditure decisions is lost."

(tax, pay or finance organisation)

4.18 A few organisations (one local government, one representative group, and one tax, pay or finance organisation) made comments about the income tax actually being classified as a "local" income tax. The general argument was that a local income tax which is collected by HMRC should really be set at a local level, or it simply becomes a "national" Scottish Tax.

Administrative burden

4.19 Eleven organisations (7 local government, one political, one tax, pay or finance, one retail/ business and one representative group) referred to the administrative burden that a locally set tax would have on employers. This issue is discussed in more detail at question 10. However, one representative group did not understand why it should be so difficult to collect 32 different rates of tax, commenting "In these days of computers, this would seem to us to be a fairly simple exercise of matching National Insurance numbers and residential postcodes and in any case, we doubt whether in practice there would be 32 different rates of local income tax."

Migration

4.20 Two organisations (one student and one tax, pay or finance organisation) pointed out that if local income tax was set 'locally' it would encourage changes which may have a negative impact on a local authority area:

"For example, if Fife charged a 3% rate and Edinburgh City Council 4% more people would buy homes in Fife and commute to work in Edinburgh. Employers would have incentives to locate their business in Fife."

(tax, pay or finance organisation)

4.21 Also, as noted by one student organisation, "Any variation in tax would force students to select living location or even university based on their ability to pay the local income tax level of a given area."

Nationally set rate

4.22 Comments relating to the level being set nationally included:

"There is a strong argument to say that if local income tax is to be used as a basis for taxation then this should be done at a national level in terms of ease of administration etc. The key issue over the acceptability of this then rests on whether Members believe that local tax raising powers are important or not to local accountability and democracy."

(local government organisation)

"We do not believe that it is feasible under a local income tax to have anything other than a single national rate, due to the costs of collection, and the administrative burden of tracking residence across an additional 32 areas."

(political organisation)

Impact on local priorities

4.23 Six organisations (4 local government, one equality and one tax, pay or finance organisation) examined the impact that a nationally set tax would have on addressing local priorities.

4.24 Two local government organisations agreed "If local income tax were set nationally it would remove any scope for responding to local pressures for local service needs". A different local government organisation echoed this view stating that a "nationally set local income tax would mean that local government in Scotland would have no tax raising powers of its own and there will thus be no flexibility to address local priorities".

Legal issues

4.25 One further point raised by organisations (3 local government, 2 representative groups, one legal, and one tax, pay or finance organisation) was whether the Scottish Government actually has the power under The Scottish Act 1998 to introduce local income tax as a nationally set tax flat rate 3% on the current basic and higher rates of income tax. Indeed, 2 local government organisations noted:

"There does not appear to be full agreement between the UK Government and the Scottish Government on the legislative powers which currently exist to implement a local income tax system which is set nationally. This issue must be clarified before any progress can be made."

4.26 One legal organisation warned that this is a fundamental issue which must be resolved and that the Scottish Government must be fully satisfied of the legal competence of the legislation in terms of UK and EU law before spending considerable time and resources implementing the proposals. One further suggestion by a representative group was that the legislation should be framed so that the tax may be set either locally or nationally - for example, if there is a change in government.

Whether Scottish Ministers should be able to cap a local rate

4.27 Of the few organisations who offered their opinion on Scottish Ministers being able to cap the rate:

• one local government organisation acknowledged it would have to be a political decision taken by the Scottish Government;
• a representative group commented that while the Scottish Government has the right to cap tax rates set locally, they would be disappointed if these powers had to be used;
• one local government organisation felt that a nationally set cap removes the ability and scope for determining and dealing with local authorities;
• 2 local government organisations were against a cap being set:

"Capping by Government should be avoided as it undermines the current parity of esteem and partnership approach evidenced by the Concordat between central and local government."

(local government organisation)

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