Scotland council tax to be scrapped

The SNP government has set out its proposal to scrap the discredited council tax and replace it with a local income tax (LIT). Without a majority in the Scottish parliament, the SNP will have to rely on backing from the Lib Dems, Greens and independents to get this change through.

Brian Smith and Philip Stott

The SNP was elected in May 2007 with a pledge to abolish the council tax. It will not be until 2011 at the earliest before we see the back of it. In the meantime local authorities have agreed to freeze the tax at its current rate for three years.

The council tax is regressive, benefiting the rich, and is widely despised. Socialists have campaigned for its scrapping and replacement with a tax based on ability to pay for years. Tommy Sheridan laid a bill in the Scottish parliament to abolish the council tax in February 2006 and ironically the SNP voted against it.

The SNP's scheme is in fact a modified version of Tommy's proposal. Its plan is for a 3p in the pound LIT, collected through the PAYE system. Scotland finance secretary, John Swinney, claims that over 80% of households will be better off or no worse off. The examples cited include a pensioner on under £20,000 paying LIT of £374, and a worker earning £25,000 paying £593.

Clearly the number of workers in the household is crucial if comparisons are to made with the council tax. In fact a working couple, both on £25,000 would pay over £1,000 a year in LIT, making little difference compared to the current council tax.

However there is no doubt that in terms of fairness the SNP's plans are more progressive than the council tax. Accountants KPMG, tax avoidance specialists of the super-rich, said that the plans will lead to many high earners leaving the country. Brian Souter, Stagecoach boss, would pay £28,750 instead of £1,930 and Fred Goodwin, RBS chairman, would have to cough up £120,000 rather than his current £2,338. Low-paid workers and pensioners living in poverty will no doubt charge down to the airport to wave off poor Brian and Fred.

Shortfall

The LIT will raise significantly less money than the council tax, creating a £750 million shortfall. The SNP says this will be covered through the money currently paid from the UK government to people who qualify for council tax benefit and from the 2% annual "efficiency savings" that they have demanded from local government.

The SNP's position is that the £400 million of council tax benefit is "Scotland's money", but the UK treasury has floated the idea that if the council tax is abolished in Scotland then they are under no obligation to place this £400 million in the annual Scottish block grant.

The SNP have also said that another £70 million will have to be found each year to sustain the rate at 3% in the long term.

There are also additional one-off costs in setting up the new tax and an ongoing yearly cost of administering it, so it is clear that the SNP's plans would not increase funding for local government services (unlike the Service Tax promoted by Tommy Sheridan) and would probably in fact lead to further spending cuts.

It would be churlish not to treat seriously any plans that seek to replace the council tax with a more progressive scheme. However, the SNP's proposals could have been even more progressive if they had adopted a multi-tiered rate that saw the rate of LIT increase as income rose, rather than a flat rate one.

A more punitive redistributive tax on the rich could also raise enough money to maintain or even increase local government spending.

Public spending cuts are not what local government workers and the communities they serve, hoped would be the outcome of abolishing the council tax.

What is required, alongside a progressive alternative to the council tax, is a decisive increase in local government funding. This could not only maintain jobs and services and allow a living wage for council workers, but also deliver a real expansion of local government to meet the needs of working-class communities. Unfortunately, the SNP shows no signs of fighting for that.