10 April 2008

From bad to worse

So the Treasury thinks that the Scottish Government's proposals for a "local" income tax amount to a "national" income tax and are therefore a reserved matter under the Scotland Act. Well, they may have a point. On the other hand, and not unsurprisingly, SNP Ministers beg to differ - and they may also have a point.

But don't look to the Scotland Act for clarification. All the Act does in this area is to set out (in Part II of Schedule 5) the following reserved (to the UK Government) matter:
A1. Fiscal, economic and monetary policy

Fiscal, economic and monetary policy, including the issue and circulation of money, taxes and excise duties, government borrowing and lending, control over United Kingdom public expenditure, the exchange rate and the Bank of England.

and the following exception to that provision:
Local taxes to fund local authority expenditure (for example, council tax and non-domestic rates).

None of which is enormously helpful. There is no further definition of local taxes. Accordingly, the only way to settle the matter would be through the courts.

Ultimately, it's just another problem with local income tax to add to the rest: the obvious unwillingness of HMRC to collect it, the council tax benefit black hole, the costs to employers in having to deduct it from payrolls, the unfairness of excluding unearned income from tax assessment, the financial burden to be added to families with more than one earner. It becomes increasingly difficult to see how local income tax as envisaged by the SNP can be implemented. I presume that at some stage Mr Swinney and Mr Salmond will wish to walk away from their proposals (or at least to kick them into the longer grass), preferably while blaming the UK Government. It won't be that easy, however, if the source of all or most of the troubles proves to be inadequate preparation on the part of the Scottish administration.

4 comments:

Anonymous said...

Surley if it is deemed to be a national and not a local tax then the Scottish Parlaiment has the authority to varying income tax by 3% - which is what Salmond and co have said they'd set Local Income Tax at.

Might be a way round the problem?

Dave said...

Not entirely. Apparently, the power in the Act to vary income tax only applies to the standard rate and not the higher rate - don't ask me why.

Therefore to base the local income tax proposals on the Act's tax rate varying powers would not only be deemed to be even more unfair, but it would also reduce the income generated (thus increassing the size of the black hole).

Anonymous said...

The Scottish Government is proposing to abolish local taxation and fund local government from (in part) an increase in the higher rate of income tax. A change that is outwith the remit of the Scottish Parliament. So, the response of the UK Government is understandable - they've been given a golden opportunity to pursue their 'conflict strategy' while at the same time having a defensible position.

Anonymous said...

While the SNP have the power of levy the 3p rise at an all Scotland level, perhaps have it collected by the Revenue and distribute it to local authrities in the same way as the block grant at present, it requires a stretch of the imagination to judge this a local tax in the same way as the comunity charge. In short the SNP are proposed the abolition of local taxation