Reach consensus before ditching council tax

Published on Wednesday 3 September 2008 22:06

THE First Minister has built his political reputation by seizing opportunities which others were too cautious to consider. But has Mr Salmond taken a gamble too far by including a bill to introduce a local income tax (LIT), as part of the SNP's programme of legislation for the coming year?

To date, Mr Salmond has proved adept at keeping the political initiative despite lacking an overall majority at Holyrood. So there is little reason to believe he will not be able to pilot the majority of his 15 new bills through parliament. Indeed, some of this new legislation is long overdue, particularly the maritime bill, to reform the chaotic administration of Scotland's seas; and the climate change bill, which will mandate an 80 per cent cut in emissions by 2050.

But it is the proposal for the LIT which makes this new legislative session the first real test of Mr Salmond's government.

The outcome of the public consultation on the local income tax idea was a decisive no – at least as far as the business community was concerned. The form of LIT proposed by the SNP – a national 3p in the pound levy on earned incomes at the standard rate and above – will reduce incentives and penalise double-income families. Mr Salmond believes such criticisms miss the point – that the existing council tax is unfair.

Is there a workable alternative to the existing council tax that avoids the genuine weaknesses in the SNP's version of an LIT?

Most countries have retained some form of local property tax, because it is difficult to avoid, easy to collect, and because property is a good proxy for wealth. The SNP's insistence on rejecting any form of property tax is unreasonable. One way forward is to reform the council tax to take more account of the ability to pay. This can be done through rebates and by extending the system of property bands. Such a reform could be agreed by all parties while a longer-term solution is found.

The review of local government finance by Sir Peter Burt, in 2006, recommended keeping a property tax – but basing it on a percentage of capital values. That looks less satisfactory in the light of the property crash. However, there is a case for finding sources of local government finance in addition to the council tax. This would create flexibility and deal with the fairness issue.

For instance, a land value tax, payable when a property is sold, could capture some of the capital gain derived by local development. Business rates could be returned to local control – with suitable safeguards; or a new formula could be agreed to let communities which generate new business rates to retain a bigger share locally. Or excise duties raised in Scotland could be retained by Holyrood, with a proportion hypothecated for local authorities.

Mr Salmond cannot get the votes to pass his version of LIT. He may be satisfied with a defeat that tars the opposition as pro the council tax. This is juvenile. We need a consensus on a fairer system of local financing. It is the First Minister's job to find it.