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It mostly covers my work as UNISON Scotland's Head of Policy and Public Affairs although views are my own. For full coverage of UNISON Scotland's policy and campaigns please visit our web site. You can also follow me on Twitter. I hope you find this blog interesting and I would welcome your comments.

Saturday, 22 February 2014

Building a new consensus on paying for local government

We can't go on applying sticking plaster solutions to the thorny political issue of paying for local government. Services are being damaged and local democracy is being undermined.

Today, I was speaking at a seminar organised by Edinburgh Labour on the thorny issue of local government finance. My primary message was that we need to develop a new consensus that provides a long-term solution. Politicians should take some comfort from the recent CoSLA poll that showed the public understand that good services cost money and freezing the Council Tax cannot go on for ever.

As UNISON Scotland has highlighted many times, It is the better off that benefit disproportionately from freezing bills while councils face a growing problem providing services which, by and large, the less well off rely upon. In addition, charges are increasing to plug the gaps, which again place a further burden on those least able to afford them.

To ensure that we all pay a fair proportion, all forms of wealth need to be taxed. The current system taxes wages more highly than other forms of wealth leaving ordinary workers bearing an unfair burden. Property is a significant form of wealth and must be taxed in order to reduce inequality. The well-off already own bigger and more houses than the rest of us. If this form of wealth is untaxed it becomes an even more attractive form of investment. This is the primary reason why a property tax should form the basis of local taxation.

In 2007 the Burt Review looked at all the options in detail, but the main recommendation was shelved because it was so close to an election. The report recommends taxing the capital value of properties. In my view that recommendation remains sound to this day and should be the basis of a new Council Tax.

Land Value Tax (LVT) has its supporters on the left and I can see some merit in this as a national tax, or possibly some element of business rates. LVT is a tax levied on the owners of land based on the value of the land excluding any property/fixtures on the land. One of the key issues with this tax is working out the value of land itself in order to then work out the level of tax due. Land is rarely sold without anything on it nor are buildings sold without the land underneath. This means that any bills will be based on an estimated value.

There are real practical barriers to both valuing land and billing, as UNISON members working in this area have pointed out. Landowners are not as easy to find and bill as occupiers, particularly individuals and/or offshore companies hiding in tax havens. Landowners will be able to pass the cost on to tenants in higher rent charges. Local government should raise money from those people who live and work in their area, who use the services they provide to maintain local democracy. Wealthy landowners become the major contributors to local finance under LVT, yet have no interest in supporting local services. So even if the practical difficulties over LVT could be overcome, it is not really a tax suitable for local government.

This still leaves the political challenge of changing any tax. There will be winners and losers and inevitably the losers make the most noise. It is possible to separate a structural change in local taxation from the rate at which the tax levied. Parliament could, if it so wished, reform the council tax on the basis of no increase in yield until the economy improved. That would at least provide a fair system of local taxation on which to build a broader consensus.




2 comments:

  1. It is just as easy to assess LVT as Council Tax. See here

    http://kaalvtn.blogspot.co.uk/p/valuations-and-potential-lvt-receipts.html

    Initial valuation £10 per household, 10p per year thereafter.

    Avoidance is impossible. Land Registry has titles for all domestic and commercial property.

    Landowners will not be able to pass to cost onto their tenants, and rents are already set by affordability, not cost. Basic 101 economics. See here

    http://kaalvtn.blogspot.co.uk/2013/01/g-lvt-would-benefit-rich-and-hurt-poor.html

    All landowners have an interest in local government. Planning at a local level is key to land values.

    Thereare very few losers under LVT. Anyone whose gross household income is currently
    10% or more of their home's value would be better off.

    An average household would be £10,000 per year better off net.

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  2. "Land Value Tax (LVT) has its supporters on the left"

    Not just on the left, LVT is the best kind of tax from the point of view of proper free market liberals.

    "Landowners are not as easy to find and bill as occupiers, particularly individuals and/or offshore companies hiding in tax havens."

    Patently not true - the current govt introduced a Mansion Tax specifically payable only on high value homes registered in the name of offshore companies and revenues in the first year were five times as much as expected.

    "So even if the practical difficulties over LVT could be overcome, it is not really a tax suitable for local government."

    That depends on how you define local expenditure. if you ask me, most expenditure is "local", like police, hospitals, welfare, schools etc. And most of this is funded by central government out of national taxes.

    Clearly, LVT would have to be a national tax for it to make sense, and each council then gets a per capita share of it, so voters will still be voting for which party they think spends the money best or most efficiently, there just won't be this silly bidding war about one party promising to cut property tax more than the other party.

    "Wealthy landowners become the major contributors to local finance under LVT, yet have no interest in supporting local services"

    You might as well say "High earners are the major contributors to national finance under income tax but have no interest in supporting local services."

    Well maybe they do, maybe they don't, but the system still works, doesn't it?

    Ben Jamin' has rebutted most of your other arguments so I shall leave it at that.

    Please get in touch if you need to know more.

    ReplyDelete