One of the press releases out of CCHQ (which is apparently what Conservative Central Office is now called) caught my eye yesterday: Council tax is the ultimate stealth tax.
Ummm… hello? How on earth is Council Tax a “stealth tax”? I thought a stealth tax was a sneaky revenue-rasing measure that most people wouldn’t notice whilst going about their ordinary business (hence taxation by “stealth”): Crafty things like phasing out the married couples’ tax allowance, mortgage interest tax relief and tax credits for pension funds. Council Tax, on the other hand, is one of the most up-front, in-your-face taxes in our entire system – which is precisely why it is so unpopular. It is the only regular tax for which you get an invoice, which you have to settle directly by cash, cheque or direct debit. People moan about their Council Tax bills but most of them never stop to think about VAT (which they probably pay a lot more of).
Getting away from the bizarre spin, the Tory press release did quote Caroline Spelman pointing out two real problems with Council Tax. Firstly that many households, especially pensioners, simply can’t afford it; and secondly that many eligible households do not claim their Council Tax benefit because of the many hurdles involved in the ever-complex tax-and-benefit system.
Then the press release stops, with the obligatory swipe about how council tax has gone up 84% under Labour. No attempt at presenting a solution – other than the inference that Council Tax is too high. What would the Tories do? Cut services or increase other taxes to reduce Council Tax bills?
The fact is that both of the problems Mrs Spelman describes are actually symptomatic of the fact that the very premise of Council Tax is ill conceived. As a tax on property value, rather than income, it is obviously going to discriminate against pensioners. Furthermore, because it is a regressive tax, it needs a system of rebates (student exemptions, Council Tax Benefit, etc.) which incur a great amount of hassle and bureaucracy to process.
The Liberal Democrats are known for odd-ball policies but surely their position on Council Tax is sound: it must be replaced with a local income tax. It’s not a pinko-lefty idea, they have it in the USA. Such a tax could be collected by the Inland Revenue, through the same PAYE mechanisms as the main national income tax. (The Scottish parliament can already raise extra tax in this way so it’s nothing new.) This would not only make the system fairer but would also do away with the costly paper-pushers administering Council Tax Benefit in town halls across England.
Unfortunately the Conservatives seem to be focussing on a rather negative campaign claiming local income tax would cost people more money. Well yes it might, depending on the rate at which is set. That doesn’t impact on whether the tax is fairer, or not. Actually, given that the Tories complaining that some people are unfairly having to pay more Council Tax than they can afford, the logical argument must be (if taxes are not to be cut) that others will have to pay more.
There is a separate debate to be had about whether local taxes should be higher (with national taxes being lower) so that more money is raised locally to pay for local services. There was an interesting thread on this at Conservative Home awhile back. I quite like the idea of having a range of local taxes to include business rates and sales (VAT) as well personal incomes – it would help to ensure that local authorities think about nurturing their local economy in a sustainable and coherent manner. Obviously these would have to be off-set by cuts in national taxation so as not to increase the overall tax burden.
Of course, a local income tax is not the only answer, but it is the most progressive, straightforward and transparent proposal I’ve seen so far. The point is that we all know that Council Tax needs fixing. It would be nice if the main opposition party could put forward constructive solutions rather than incessantly whining about it.
If this is the sort of press release is able to weasel its way out of CCHQ then Cameron still has much work to do in making the Conservatives a positive, constructive forward-looking party of government rather than one carping in opposition.
The cuts in Council Tax = cuts in services argument is overly simplistic. For a while, I lived in Wandsworth Council, whose CT is the lowest in the country, yet I found their services the best of any area I’ve lived in. Surely there are other considerations? I was paying about £400 per year, with clean streets, street-lighting maintained, prompt refuse collection, ample recycling facilities, well-maintained high-streets and parks, and so on.
Of course its not quite as simple as some councils being more efficient/effective than others. You also have the varient of who lives in the borough. When I lived in Kennington, the Southwark council houses were very visibly nicer and better maintained than the Lambeth ones across the road. Of course Southwark includes a good stretch of the south bank of the Thames – London Bridge and all that – so can collect lots of business rate tax without having to spend too much on that area. Lambeth, by contrast, is mostly residential, incluning lots of people who cannot afford to pay council tax (or as much of it) and consume more resources such as housing.
Saracen I meant “cut in overall level of taxation = cut in services”. If you are going to cut Council Tax you either have to raise something else or cut services.
I know Council Tax does vary enormously but this is due to many factors outside the control of the local Council. Firstly only 20% of the average council’s income comes from Council Tax. The rest comes from central government grants. There is some debate as to how ‘political’ these allocations are – the mainly Lib/Con councils in the South West of England do least well whilst traditional Labour councils get the most.
[Nia - Councils don't see any business rates. They collect them and pass them all on to central government. I actually think this is a bad thing since it means councils are not incentivised to consider the interests of local businesses.]
As I indicated in the article I would like to see more local government raised locally (through locally decided income, sales and busineess taxes) with a commensurate reduction in taxation imposed by central government. This would allow a fairer comparision between Councils to be made There would still need to be some redistribution of wealth through central government grants so that poorer areas don’t lose out but there should be a more transparent mechanicsm for this, and one that encourages innvoation and productivity.