All is fair in love and war, but what of the rules for taxation?

WHENEVER political parties propose to change taxation – whether local or national – they invariably claim that their proposal is "fairer" than the arrangements inherited from their predecessors.

Gordon Brown did it last week, and here in Edinburgh, MSPs were yesterday reviewing proposals to introduce a Scotland-wide "local" income tax launched by John Swinney, as – inevitably – "a fairer local tax for Scotland".

Of course, at first glance, this claim to fairness is immensely appealing. The proposal by the SNP to introduce a local income tax was favoured by 88 per cent of voters in the elections to the parliament last year; far more than voted for the Scottish National Party in those elections.

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And yet the seductive appeal of any such proposal to change local taxation – seductive both to voters and the politicians – is fraught with difficulties that often only become apparent after such a change is made.

The late Nicholas Ridley, the minister who introduced the poll tax, ruefully recounted how he had been told that the community charge would be no greater than 100 or 200 per head; in fact it turned out to be three or four times that figure.

Various attempts have been made over recent years to propose changes to forms of local taxation, dating back to the mid-1970s.

All of these attempts have had one thing in common. Whatever the considered, detailed and lengthy work that has been done on alternatives to the rates (or more recently the council tax), governments – of various parties – have treated all of these like hot coals.

One of the most shameful actions of the last Scottish Parliament was that all parties rubbished the year-long work of the Burt Committee on local government finance – even before it was published.

Whenever changes are proposed in local taxation I try and remind anybody seriously interested in such matters of several almost immutable rules.

Increases in taxation reflect increased expenditure on local government services; there is no easy route to reducing taxation levels without cutting expenditure on services.

Over the past ten years the curve of council tax increases has generally followed the upward curve of council expenditures. To paraphrase the old (Bill) Clinton campaign motto: "It's the services, stupid".

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Regardless of the change proposed in any form of taxation there are individual winners and losers; the losers are generally highly vocal; the winners less so.

As this debate heats up, MSPs will face school and church hall meetings where hundreds of people will be clamouring for no change from the council tax; that can be hard to face for elected representatives.

Regardless of the quality of economic modelling in aggregate, there will always be idiosyncratic outcomes where some individuals and households will lose rather than win. Age Concern Scotland has estimated that more than 100,000 pensioners will pay more in local income tax than they do in council tax.

All substantial reviews of local government financing (UK wide) in the past have sought to increase the percentage element of local determined income streams as part of the overall revenue mix.

This has been seen as a means to increase local discretion, accountability and responsibility. The scheme currently proposed would have the effect of reducing discretion available to local authorities at the same time as there is debate about increasing the discretion of the Scottish Parliament.

If local financial discretion for councils is further constrained through the removal of powers for locally raised taxes, councils will seek to maximise their discretion in other directions.

Where they can, councils will review and increase those fees and charges which they have direct control over more aggressively than they have done before.

But perhaps more important than all the discussion about the merits and outcomes of any possible change in taxation is whether the proposals brought forward by Mr Swinney are within the powers of the Holyrood Parliament to introduce.

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This is a complex matter, but the more I have examined and discussed it I am increasingly sure that it is not competent for parliament to introduce a new taxation regime of the form proposed in the current consultation paper.

There are some key factors here; all of them complex and uncertain and most of them presenting a potential field-day for lawyers. The act creating the Scottish Parliament gives the parliament powers for "the variation of the basic rate of income tax" and therefore excludes an impact on higher rates, precisely what the Scottish Government proposes to do in its plans.

One critical part of the act refers to "The Tax Varying Power", with a definite article. It often appears to be the case that in general discussion, various people refer to "tax varying powers" (sic) for the parliament, when it actually only has this one such power.

Other parts of the Scotland Act allow the parliament to legislate change in "local taxes to fund local-authority expenditure (for example, council tax and non-domestic rates)".

Over recent months those who have argued for the Scottish Government scheme have made much of this clause; however, they have done so by ignoring the double use of the word "local" in this one phrase.

Paradoxically, it may be the case that the parliament could authorise councils to set and collect income tax as a substitute for the council tax, but that would only be on the basis of a genuinely variable system with rates varying in each of the 32 council areas.

Whether voters would be in favour of that change is another matter – for another day.

• Richard Kerley is vice-principal, International Strategy and Commercialisation, at Queen Margaret University, Edinburgh.