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Johnstone's View 16th March 2008

Most local government expenditure, in some cases up to 80 %, is paid for through central government grant.  That means the money is raised in general taxation and then allocated back to local authorities according to their particular local needs. As a result, there is a very strong element of redistribution built into the system so areas where average salaries and employment levels are higher pay more and areas of greater deprivation benefit.

The council tax is used by local authorities to top up these funds and it is both raised locally and spent locally. The Scottish National Party however, is proposing to replace the council tax with a 3p in the £ income tax increase set nationally.  Areas like the North East of Scotland where average employment and wage levels are higher than the Scottish average will therefore contribute a further disproportionately large amount to the pool and, when the distribution of funds take place, the same formulae will apply which currently governs the 80% coming from central government.

This means that the North East of Scotland, already the least well funded area in Scotland, will get even less.

And another thing; we all know there are many people in Scotland who cannot afford to pay their council tax.  They of course can claim Council Tax Benefit which, like all pensions and benefits, is not devolved and is paid directly from the benefits agency.  This money is not part of the Scottish block grant and is allocated directly on the basis of claims made by, or on behalf of, individuals who can’t afford to pay.  If we move to a system based on income, and therefore on the ability to pay, then the council tax benefit will disappear in a puff of smoke costing the Scottish economy £400million per year.

The SNP’s proposals to put 3p on income tax also, it should be noted, falls massively short of raising the £Billion’s currently taken by councils through the council tax, meaning that either the Scottish Government will have to diverted resources away from other essential public services or that councils themselves will be progressively squeezed till it is they, rather than Scottish Ministers, who are forced to make the cuts, much as is already happening in the City of Aberdeen.

The people of Aberdeen are currently swelling my mailbag and e-mail in box with complaints about the services that are being axed by Aberdeen City Council in a desperate attempt to ‘cut their cloth according to their means’.  Aberdeenshire Council have managed to avoid a crisis this year but may be only a few steps behind their city neighbours on the road to financial ruin.

Add to this a further consideration.  One of the greatest sins of the current Labour Government is that it has reversed the greatest single achievement of its Conservative predecessor, that the millions of low paid workers who were taken out of the income tax system all together have all now been pushed back into the lower tax bands. Those of you who will soon be paying all your income tax in the 20% band will be paying a higher proportion of your earnings in income tax than any other income group.  It is for you that a further 3p in the £ will constitute the greatest burden.

So it would seem that the consequence of this move would be more tax to be paid, less money for public services, more redistribution leaving the North East paying more and getting less and, worst off all, the people suffering the biggest tax increase will be those on, or just below, average wages for whom basic rate income tax is already the greatest burden.

This move could also contribute to the complete demise of local government since, once Councillors no longer have a role in setting local taxation and a responsibility to provide value for money, their only function would be to moan endlessly about government under funding.  Ultimately, the Scottish governments solution to that would be direct funding of public services and the elimination of local democracy entirely.

No tax is ever popular, local taxes doubly so. Reactionary changes made for political reasons can easily be counter productive – and me a Conservative, oh the irony. Most of us who pay tax can also count so do the sums for yourself, it just doesn’t add up.