Many people have been calling for the implementation of a new Local Income Tax to replace the existing Council Tax system. It is expected that people would pay on average 3 – 4% on their income depending on their earnings. It is envisaged that a Local Income Tax would benefit lower and middle income earners especially. Outlined below are some of the costs and benefits which could be associated with a Local Income Tax.
Some arguments in favour of replacement of Council Tax with Local Income Tax:
UK Council Tax is levied to pay for local services and is based on the value of the property in 1991. It bears no relationship to your income and since 1995 has more than doubled. This would no longer be relevant.
- Council tax is regressive – the less income you have, the higher the percentage of your income you have to pay in Council Tax. Local Income Tax (LIT) spreads the burden of local taxation based on people’s income. Many pensioners and low paid workers are disproportionately affected. These groups would find the Local Income Tax especially beneficial.
- Local Income Tax, as a general rule, is only paid on income that is already subject to normal income tax. If people don’t pay Income Tax, they won’t pay new Local Income Tax .
- The current system is generally seen as unaccountable due to complexity, lack of clear responsibility for services, and central government control. This complex, means-tested Council Tax system would disappear. A Local Income Tax would be cheaper to administer and implement, and would also be much simpler to understand.
- Local Income Tax is a viable and realistic alternative to Council Tax.Many don’t have an alternative. Michael Howard as Shadow Chancellor once notoriously replied “I don’t know” when asked what the Conservatives’ alternative to Council Tax was.
- “Companies would probably have to increase salaries to keep employees and if they are having to pay people more than they would in Manchester or Newcastle, it’s a disincentive to operate in Scotland.” – Bristow Muldoon MSP
- “It is … our view that such a system would have to be national; that is, nationally set and nationally collected. It would be impossible to vary the rate of taxation among local authorities, and impossible to collect on a local basis. We contend that such a tax would further centralise the financial settlement and take away what little flexibility local authorities have at present.” – Society of Local Authority Chief Executives in Scotland (Solace) 2005 submission to Independent Review of Local Government Finance.
- “The Lib Dems’ claims of an LIT priced at an average of 3.75p in the pound fly in the face of independent assessments about the rate at which it needs to be set in order to raise the same amount of local revenue as the Council Tax…A local income tax is a tax on hard working families. It is a tax on pensions and a tax on the profits of most small businesses in Scotland. The Scottish Conservative plan to cut in half the Council Tax bill for every pensioner household aged 65 and over is fully costed and doesn’t punish families.” – Derek Brownlee MSP
- “Council Tax remains a broadly sound tax, though it has become overloaded within the present system. In the short term, action is needed to both improve the perceived fairness of council tax by improving the take-up and design of Council Tax benefit, and to take the pressure off Council Tax through greater local flexibility over spending.” – Sir Michael Lyons “Place-shaping: a shared ambition for the future of local government” (Independent Inquiry into the future role, function and funding of local government.)