The UNISON Scotland Response to the consultation
by the Local Government Finance Review Committee
February 2005
Introduction
UNISON is Scotland's largest public sector trade
union representing over 150,000 members. Over 90,000 of these
work in local government and related services.
This paper constitutes UNISON Scotland's response
to the Local Government Finance Review Committee consultation
on local taxation in Scotland.
The Local Government Finance Review Committee was
established on 16 June 2004 independent of Scottish Ministers
to review the options for local taxation in Scotland and to make
recommendations to Ministers. The Committee is Chaired by Sir
Peter Burt.
The consultation paper is available on the Committee's
website www.localgovernmentfinancereview.org
Background
Local government finance has been the subject of
many reviews. From Layfield in 1974 to the Scottish Parliament
Local Government Committee in 2002. The current review reflects
different policy approaches of the Labour/Liberal Democrat coalition
to this issue. In addition above inflation increases in the current
local taxation system inevitably sparks a debate about the system.
UNISON Principles for Local Taxation
In developing our response to the detailed questions
set out below UNISON Scotland has adopted the following principles:
In summary UNISON believes that the Council Tax
provides a stable yield for local councils at low administrative
cost. It should be reformed to make it more progressive through
revaluation and changes to the banding. The non-property based
alternatives (Local Income Tax) are administratively complex and
easier for the wealthiest members of society to avoid. A tax on
employment when property should have a place in any ‘basket' of
taxation.
UNISON Responses to questions posed by the Committee
Core Issues
Question 1: We would like the options set out in Sections
5 and 6 to be considered against at least the issues above. Are
there any other issues that we should be considering? If so, what
are they?
The core issues set out in section 4 are a fair reflection of
the factors that should be considered. It is also important to
recognise that many of the responses depend, not on the strengths
or weaknesses of the current system, but on the level of taxation
- a policy decision. Whilst local government funding has increased
in real terms it has increased below the average of other portfolios.
Accountability and Balance of Funding
Question 2: How well do you think that any or all of
the options for local taxation set out in Sections 5 and 6 address
the issue of accountability?
UNISON believes the issue of accountability is important
although this is not limited to the local taxation system. Whilst
the Scottish Executive does lay down statutory requirements we
operate a system of local government not local administration.
Alternatives to the Council Tax offer no greater accountability
in our view.
The fact that only 60% of the adult population pay
income tax is an argument against LIT systems but not in our view
the strongest. We are opposed to the SSP's Scottish Service Tax
because it would be set nationally with a consequential loss of
local accountability.
Question 3: Is the present overall balance
of funding for local authorities between Scottish Executive funding
and local (non-business) taxation a reasonable one? What are the
reasons for your views?
The current funding balance gives the Scottish Executive
a high degree of control over local government revenue finance.
Not only is 80% of the revenue provided by the Executive but it
also ring fences some of this resource. One possible way of reducing
ring fencing is through Local Outcome Agreements (LOAs) under
which the Executive and councils agree local service targets that
are informed by both national and local priorities.
The balance of funding in Scotland is one of the
most centralised in the EU. For example local funding is 60% in
Sweden, 57% in Spain and 44% in France. It might also be argued
that lower election turnout and the ‘gearing' impact of the current
balance are also consequences of the current imbalance.
Question 4: If you think the proportion
of funding raised by local government should be increased, what
action should be taken to achieve a different balance?
Primarily by returning non-domestic rates to local authority
control. We would strongly oppose transferring one or more major
services from local government to the Scottish Executive. The
growth of quangos and government agencies already undermine democratic
accountability. The fact that the Scottish Executive directs the
standards in many services such as police, fire and education
is not a sound reason for removing local accountability.
Question 5: If you think the proportion
of expenditure which is funded by the Scottish Executive should
be increased, what do you think the revised balance should be?
If non-domestic rates were returned to local authority
control the proportion of income raised locally would increase
to around 45%. UNISON believes that this is a better balance giving
local authorities greater freedom to pursue local priorities.
Question 6: What are the arguments, both
in theory and in practice, for and against having all (i.e. 100%)
local government finance determined centrally with local authorities
having responsibility for expenditure?
If all finance was centrally raised there would be less flexibility
for local authorities to pursue local priorities. In practice
the ability to move resources between budgets is limited by service
requirements to a greater degree in local authorities than the
Scottish Parliament that receives most of its income from the
Treasury. 100% funding would also strengthen the psychological
effect providing the majority of funding has on relations between
central and local government. Even the semblance of parity of
esteem would be impossible.
Options for Non-Business Local Taxation
Property Based Options: Council Tax
Question 7: How well does the Council Tax address each
of the core issues in the checklist outlined in paragraph 28 above?
What, if anything, is wrong with the Council Tax?
UNISON believes that a property tax is an important part
of the ‘taxation basket'. Whilst property value is not a faultless
indicator of wealth or ability to pay, research shows that there
is a broad link. It remains a widely accepted and understood basis
for local taxation, more difficult for tax avoidance and therefore
it would be wrong to exclude it from taxation altogether.
Scotland is a small country that has pressure on
space in certain areas and related housing problems. Encouraging
over-consumption of housing by leaving it as one of the few wholly
untaxed items of consumption is not desirable.
Question 8: Could any drawbacks be dealt
with by reform of the Council Tax? Or are the drawbacks so serious
that the Council Tax should be scrapped in favour of a different
local taxation system? What are the reasons for your views?
UNISON believes that reform of the Council Tax is the
correct approach. We broadly support the conclusions of the Local
Government Committee's 2002 inquiry including regular revaluation
and revised banding.
Revised banding should probably include an additional
band at the lower end and one or more at the top end. This would
make the banding system more progressive.
Question 9: Would there be advantages
in retaining the Council Tax - in either its present form or on
a reformed basis - as the local non-business taxation system?
If so, what are these?
Yes. See above.
Question 10: Would there be advantage
in combining the Council Tax - reformed or unreformed - with some
other system of local (non-business) taxation? If so, what?
As a reformed Council Tax is essentially a sound local
tax we see no case for complicating the taxation system or introducing
further levels of administration.
Question 11: If the Council Tax were
retained - on either a reformed or unreformed basis - should there
be a revaluation of domestic property? If so, when should the
revaluation take place? How frequently should revaluations be
held? What are the reasons for your views?
There should be regular revaluations at five-yearly intervals.
However, revaluations should not coincide with the revaluation
of non-domestic properties because of the effect this would have
on the work load of the assessors in Scotland.
The results of research undertaken by Heriot Watt
University for the Local Government Committee suggest that property
values in Scotland have changed significantly since 1991 - and
that relative property values are now much higher in some areas
(eg Aberdeen, Edinburgh and East Dunbartonshire) than they were
in 1991; and relative values have fallen in other parts of the
country (eg Glasgow, Dundee and Renfrewshire). There would therefore
probably be a need for transitional arrangements for both individuals
and authorities. This would subsequently even out if regular revaluations
took place.
Other Property Based Options
Question 12: Would there be advantage
in re-introducing domestic rates as a replacement for the Council
Tax? What are the reasons for your views?
The case for domestic rates or LVT is similar to the Council
Tax. We see no merit in changing the system with the consequential
upheaval for marginal if any gain.
Question 13: How well do domestic rates
address each of the core issues in the checklist outlined in above?
See 12 above
Question 14: Would there be advantage in introducing
the Land Value Tax as a replacement for the Council Tax? What
are the reasons for your views?
See 12 above
Question 15: How well does the Land Value Tax
address each of the core issues in the checklist outlined in paragraph
28 above?
See 12 above
Non-Property Based Options
Question 16: Would there be advantage
in introducing a local income tax as either a complete replacement
of the Council Tax or as a supplement to it? What are the reasons
for your views?
We see no merit in LIT as it will be fully integrated
into the national taxation system, blurring the distinction between
national and local spending and accountability.
As argued above property should not be excluded
in a ‘basket' of taxation. Its effect would be to shift the burden
of local taxation to those in employment. The problems of the
‘cash poor, property rich' should be addressed through reform
of Council Tax Benefit.
There would be a wide range of administrative difficulties.
Registration or declaration of residence would be required, which
has not until now been an issue in the income tax system in the
UK. People are taxed through pay as you earn, on the basis of
information that is supplied by their employer without the Inland
Revenue needing to know where they live. With a LIT, the system
would need to record accurately the residence of individuals,
both to charge them the right amount of tax and to attribute the
right revenue to the right local authority. That would have to
be enforced, or else some people would choose to declare residence
in places with low tax rates. As with other forms of income tax
it is rich who are better able to avoid taxation.
Most experts argue that the power to vary LIT should
be confined to earned income. A large proportion of the tax on
investment income is deducted at source, without any need to be
sure of residence. It would be administratively complex to collect
and allocate this income but again it would be the wealthiest
members of society who would benefit.
In addition to administrative problems there could
be significant variations in yield making it difficult for local
authorities to maintain services. Scotland would also lose some
£300m in Council Tax Benefit.
Question 17: What would be the optimal
form of any local income tax scheme? How should it operate in
detail, particularly in terms of setting the tax and its essential
features?
See 16 above
Question 18: Should it be separate from the national
income tax system or fully integrated with it? Would a local income
tax operating within the national income tax system obscure the
link between council spending decisions and the levels of local
tax? What are the reasons for your views?
See 16 above
Question 19: How well would a local income
tax address each of the core issues in the checklist outlined
in paragraph 28 above?
See 16 above
Question 20: Would any form of poll tax be
worth considering as part of the future local taxation system
- either on its own or in combination with some other tax? What
are the reasons for your views?
The case against the regressive poll tax was well made
at the time the last Conservative government introduced it. To
return to it in any form would be unthinkable.
Question 21: How well would a poll tax
address each of the core issues in the checklist outlined in paragraph
28 above?
As above.
Question 22: Would a local sales tax
be worth considering as either a full or partial replacement for
the Council Tax? How well would a local sales tax address each
of the core issues in the checklist outlined in paragraph 28 above?
Sales Tax is already in the basket of taxation through
VAT. This is essentially a regressive tax, mitigated by exemptions,
and therefore does not meet the most important of the core issues
outlined above.
Question 23: Is a tax on motor vehicle
fuel appropriate and worth considering as a local tax? How well
would such a tax address each of the core issues in the checklist
outlined in paragraph 28 above?
We remain unconvinced of the merits of this proposal for
the same reasons as set out above for a sales tax. It would have
a disproportionate impact on rural areas.
Question 24: Would a tourist tax be worth
considering as a supplement to the Council Tax or any alternative
form of local taxation?
We would not reject out of hand this option as a supplement,
not a replacement, for the council tax. Councils have to provide
services for tourists who do not contribute through the Council
Tax. Therefore some form of ‘bed tax' would seem reasonable and
is used elsewhere. Further research would be required on the economic
impact on the tourism industry that is so vital to Scotland's
economy.
Question 25: Are there any other models
of local taxation that the Committee could consider? If so, what?
Options for Business Taxation
Question 26: How well do non-domestic rates
address each of the core issues in the checklist outlined in paragraph
28 above?
We believe the system of non-domestic rates is essentially
sound and meets most of the tests set out in the core issues.
Question 27: Would there be advantage or
disadvantage in returning responsibility for setting the non-domestic
rate poundage to local authorities? If so, what?
UNISON strongly supports the return of non-domestic rates
to local authority control. Whilst business organisations continue
to oppose this reform they have produced very little evidence
that there would be a negative impact on local firms.
As set out above we believe this is the most straightforward
way of achieving a shift in the balance of funding creating greater
financial independence and autonomy for local councils.
However, the grant distribution system would need
to take account of differences in councils' taxable capacity -
so that low rateable value areas were not disadvantaged by the
change.
Question 28: If responsibility for setting
the non-domestic rate poundage were returned to local authorities,
how would this affect the relationship between local authorities
and the business sector?
It would help to re-establish effective links between
businesses and local authorities to complement councils' community
leadership and economic development roles and reduce the gearing
affect of the council tax. Businesses would have immediate access
to the point of collection and be able to discuss locally the
impact of the tax and services those taxes pay for.
Question 29: Should a local payroll or employment
tax be considered as either a full or partial replacement for
non-domestic rates? How well would such a tax address each of
the core issues in the checklist outlined in paragraph 28 above?
Question 30: Should a local tax on corporate profits be
considered as a full or partial replacement for non-domestic rates?
How well would such a tax address each of the core issues in the
checklist outlined in paragraph 28 above?
Both of these sources of taxation are covered by UK taxation
systems and therefore would be seen as a double tax on employment
or profits.
Question 31: Are there any other options
for local business taxation? How well do they address each of
the core issues in the checklist outlined in paragraph 28 above?
Related Issues
Question 32: Should local authorities
be given the power to charge for a wider range of services than
is currently the case? If so, for which additional services should
authorities be able to charge? What are the reasons for your views?
The only other option considered in our own research has
been the extension of charging for non-core services. However,
this again has the potential to be a regressive form of taxation
unless applied in very limited circumstances.
There is a case for local authorities to charge
above full cost recovery for a very limited range of commercial
services and they should have the power to do so. The income is
likely to be marginal and therefore supplementary to other taxation
systems.
Question 33: Is there a case for a system
under which particular local services would be fully or partially
paid for by direct fees or charges as an alternative to funding
from local (non-business) taxation? If so, to which services should
such a system apply? What are the reasons for your views?
No. Business rates are a contribution towards essential
public services for the whole community.
Question 34: Are the current arrangements
for the collection of water and sewerage charges alongside the
Council Tax satisfactory? Do the billing arrangements blur accountability?
What are the reasons for your views?
Question 35: If you believe the current arrangements
are unsatisfactory, what changes would you propose?
Question 36: If a new (local) taxation system were
to be introduced, how would this affect the current arrangements
for collection of water and sewerage charges?
There is an element of blurred accountability, although
the documentation has improved significantly in recent years.
In theory Scottish Water could collect water charges separately
and have the powers to do so. However, the additional collection
costs would be significant for very little gain.
Question 37: What are the strengths of
the present system for distributing Grant Aided Expenditure (GAE)
among local authorities?
Question 38: What are the weaknesses?
Question 39: What are the consequences for the distribution
system of moving to an alternative system of local government
finance?
Question 40: Is equalisation necessary? If you think
that it is necessary, to what extent should it apply? What are
the reasons for your views?
Grant distribution has also been the subject of as many reviews
as local taxation. In essence the losers complain and the gainers
keep quiet. Any proposed changes to the system are viewed in that
light.
UNISON generally supports a formula based grant
distribution mechanism that focuses on local need and is not used
a means of directing resources to Scottish Executive priorities.
The review should also address the issue of ring
fencing. The Welsh Assembly has rightly abolished this practice
and UNISON believes Scotland should follow more quickly
Any Other Issues?
Question 41: Are there any other issues
that you feel are not covered in this consultation paper and that
you feel the Committee should be covering in its review? We look
forward to receiving your views.
The questions above focus on revenue yet capital
finance is also important. The Scottish Executive has steadily
increased capital expenditure over recent years and plans to do
so again in the next budget cycle. In addition the abolition of
s94 consents and the introduction of a prudential borrowing regime
will give councils much greater flexibility over capital expenditure.
However, PFI remains a concern as the Executive
does not provide a level playing field between prudential borrowing
and private finance. Councils only get the subsidies for new schools
if they go down the PFI route. Similar considerations apply to
housing stock transfer. One of the main constraints is the obsession
with achieving off-balance sheet solutions that do not count against
the Executive's block grant.
UNISON therefore believes that the solution is a
level playing field between PFI and conventional borrowing so
that local authorities can choose the option that genuinely provides
the best value for money.
Whilst Council Tax Benefit is a reserved matter
it is vital in ensuring that there is a relationship between household
income and the amount of Council Tax payable. Low take up of this
benefit remains a concern largely due to the stigma of a means
tested system. We therefore believe there is merit in reviewing
the system by raising the savings limit and moving towards a simple
and understandable ‘maximum liability to Council Tax'.
