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Item 3 is further consideration at stage 1 of the Council Tax Abolition and Service Tax Introduction (Scotland) Bill. We will hear evidence from two panels of witnesses, the first of which is led by George Lyon, the Deputy Minister for Finance, Public Service Reform and Parliamentary Business. He is supported by Nikola Plunkett and Peter Conlong of the Scottish Executive. As usual, I will give the minister the opportunity to give an introduction on the Executive's view on the bill, after which we will have questions and answers.
I will be relatively brief. I thank the committee for inviting me to discuss the Council Tax Abolition and Service Tax Introduction (Scotland) Bill. The Scottish Executive's memorandum on the bill was submitted to the Parliament on 31 December 2004. We oppose the bill for the reasons that are set out in our memorandum, which I am happy briefly to go over for the committee.
I acknowledge that the independent review of local government finance is under way. The Executive's view that the review report should be awaited is well known, but the committee must produce a report on Mr Sheridan's bill, so can the minister share any Executive views about the potential economic impact of introducing the regime that the bill proposes? If the proposals were implemented, what might be the impact on the provision of public services?
On the bill's economic impact, I have noted that the committee has had much debate about fiscal flight. That is an important issue that the Burt committee will have to take into account when reaching a view on the various proposals. It is interesting to note that all political parties, including the Scottish Socialist Party, have made submissions to the Burt committee. I have no doubt that Sir Peter Burt will examine such matters.
I will go further. Your predecessor, Tavish Scott, sent the committee a letter when the bill was introduced in which he made a point, to which paragraph 12 of your memorandum refers, about the likely yield of the Scottish service tax as compared with that of the council tax. He said that an additional £313 million could be raised if Department for Work and Pensions funding were not retained and £600 million could be raised if it were retained. Was that calculation made on the basis of no impact on the number of taxpayers in Scotland? Did it take any account of a reduced tax take because of fiscal flight? Did it take account of any additional cost to public services arising out of having to pay higher wages to retain public servants following the bill's implementation?
I can confirm that the figures are based on the SST model only and that no economic impact has been considered. It is interesting that the original memorandum on the bill mentioned £485 million. We point out in our submission that we think that figure is wrong and that it should be about £318 million.
Has the Executive estimated how much it would cost the Inland Revenue to collect the tax? Does the bill require the Inland Revenue to collect the tax or would local authorities or the Scottish Executive have to seek an agent's agreement with the Inland Revenue?
We set up the Burt committee to look at those matters. We have not considered the impact on local government of transferring the collection system to the Inland Revenue; neither have we discussed the matter with the Inland Revenue.
Does the Executive have a view on whether there will be fiscal flight from local income tax regardless of form?
No, we do not have a view on that: that is why we set up the Burt committee. We will have to await the committee's report. Mr Sheridan's proposals are different from the local income tax proposals that other parties in the Parliament have put forward. The Local Government and Transport Committee has asked questions about the punitive rates of tax that the bill envisages for some earners in the higher-income brackets. I note from the committee's evidence sessions that there is concern that the combination of 40 per cent plus taxation and a 20 per cent national service tax would have serious consequences for the Scottish economy and for our ability to retain people in this country.
It would be unfair of me to suggest that ministers might be influenced by party-political policies—I appreciate that you are above that. I presume. However, as far as the idea of a change in local government funding is concerned, how would Mr Sheridan's tax impact on local government services? You hinted that there would be an impact. Can you tell us more fully what it might be?
Before the bill could be passed, its full impact on local services would have to be assessed and detailed work would have to be done on the financial memorandum and its consequences. Questions about water charges and council tax benefits remain to be answered; the committee has asked questions about fiscal flight, to which we need answers.
Does the Executive have any views about how the way in which the benefits system relates to local tax could or should be reviewed?
Council tax benefit is a reserved matter. It is in the remit of the Burt committee to ensure that it takes such matters into consideration. I hope that that committee will provide some information to clarify the situation.
Does the Executive have a view on the proposed amnesty on past debt on local government charges?
Yes indeed. We totally disagree with that proposal because we estimate that there is more than £700 million of uncollected council tax. That seems to contradict what Mr Sheridan asserts is the total, which I understand to be £180 million. I am not clear how he comes to that view. Such an amnesty would send entirely the wrong signal when we are trying to encourage councils to increase the collection of council tax, and we are totally resistant to it.
Perhaps you will share with the committee the details of how the Executive put together the figure of £700 million.
I will ask my officials to do that. I should have said at the beginning that the officials are happy to answer factual questions, but given some of the political debate on the subject, they will respond to factual questions only.
Our figures indicate that £761 million of council tax debt and a further £441.5 million of community charge debt are currently outstanding. Those figures are from 31 March 2005.
The relationship between the Scottish Executive and local authorities is important. Do you think that the relationship would be damaged if a nationally imposed service tax were introduced?
We have to return to the findings of the Local Government Committee, which looked at the matter. It stated clearly:
One of the concerns that came out in the consultation is that, under these proposals, the money given to local authorities in council tax benefit would be lost. Will your officials give us a figure for what you believe would be lost to the Scottish economy because of that? The response we received was that it is only a matter of politicians having the will to go to Westminster and ask for the money back.
I will not argue with your suggestion about Mr McCabe. The officials will give you the figure you asked for.
Approximately £300 million would be lost in council tax benefit.
Those matters would have to be discussed and agreements reached before we could progress. I return to my original proposition: the Burt committee was set up to look at these matters, so we should await its report.
The substance of your evidence seems to be that it is premature to suggest a replacement for council tax and we should wait for the Burt report to be published in the middle of 2006 before we suggest any replacements.
That is exactly what I said in my initial statement.
I think you also said that suggesting a replacement for the council tax before the Burt report comes out would be a political stunt.
No, I did not say that proposing a replacement was a political stunt, but we need to wait for the Burt committee's response to all the proposals that all the political parties, including yours, have submitted.
You accused me and the SSP of performing a political stunt. Will you explain what that political stunt is?
Trying to drive through your proposal before Burt reports is a political stunt.
Are you saying that it would be wrong to drive through anything before Burt has reported?
I am saying that we should wait for Burt's report on all the various suggestions that have been made.
Given that you stood on an election manifesto that listed 10 reasons to vote for the Lib Dems, number 5 of which was that you would axe the council tax, you could be accused of being a political phoney. Was that proposal not a stunt, given that you gave it as a reason why people should vote Lib Dem before Burt reported?
You understand that the proposal to which you refer was made by the Liberal Democrats during the campaign for the Westminster elections. Under the current constitutional settlement, that proposal sought support for the introduction of an alternative system to council tax south of the border. In Scotland, the issue is devolved. We have put forward our proposals for a local income tax, the Labour Party has put forward its proposals for a modified council tax and others have put forward their views. I come back to my original proposition, which is that it is simply disingenuous and a blatant political stunt by you to suggest that the bill could abolish council tax when there is no parliamentary majority for a replacement system. That is the important point.
Does the party that you represent not have a position on replacement of the council tax?
We have and it has been submitted to the Burt committee, as the member is well aware.
So you have submitted a conclusion without listening to the Burt committee. Is that not a bit premature, according to what you are saying?
Like you, we have submitted our proposals. We will wait to find out what Burt has to say.
Ah. You are saying that one party has submitted proposals, while another has been guilty of performing a stunt. It is a bit disingenuous of you to make that suggestion.
Okay. It says:
What do you mean by that? What is your understanding of the proposal that accompanies the bill?
Our understanding is that it is your intention to give control of business rates to local authorities.
In paragraph 4 of your submission, you refer to the inquiry that the Local Government Committee conducted in 2001-02. It said that a Scottish service tax would
Your central proposition is that income tax should be set at national level. In other words, what you propose would be a national socialist service tax, which completely contradicts the idea of a local income tax and would give no local accountability whatever. Indeed, I argue that such a tax would compound matters by allowing business rates to be set at 32 different levels throughout the country.
I have a supplementary on that. Is not the point that the loss of local accountability follows from the fact that although the tax for individuals would be set nationally and business rates could be set locally, individuals on the voters' roll, not businesses, vote?
That is exactly the point.
I was referring to the part of the quotation that said that the bill would
I ask my officials to answer, given that that is factual question
The £313 million was based on everything else about your model with a correction for the 8 per cent. Taking council tax benefit out of the total sum that might be raised leaves £313 million.
We have therefore established the fact that if the bill were passed, we would generate several hundreds of millions of pounds more for local government than the council tax currently generates. Your evidence backs that up.
As I said earlier, the problem is that uncertainty would be created by simply abolishing the council tax without a parliamentary majority being in favour of one particular system to replace it. I argue that it would leave local services on the point of collapse.
So your evidence is that if we introduce a new system of local government taxation that generates—as your evidence shows—more than £300 million per year more for local government jobs and services, that would lead local government to the brink of collapse.
That is not what I said at all, Mr Sheridan. What I said was, if we go ahead and support your proposition without a majority parliamentary view of what should replace the council tax, we risk leaving local services unfunded completely. There is no current parliamentary majority view as to what should replace the system that we have. We need to persuade other members to go in certain directions if we wish to replace the current system.
I am lost—
I just want to ask a supplementary to get absolute clarity, and as a follow-on from an earlier answer that you gave. The Executive's calculation of the amount that the Scottish service tax would raise does not assume that economic behaviour would change as a result of the service tax. Is the Executive saying that the SST would definitely raise that amount or is it reserving its position until such an economic study is carried out?
The figure that we have supplied to the committee is based solely on the model proposed by Mr Sheridan in relation to the national socialist service tax and it does not take into account fiscal flight or any of the economic impacts that might occur as a result of the passing of the bill.
Just to correct you, minister, it is not Mr Sheridan's model; it is the University of Paisley's business faculty's model and it is based on the Fraser of Allander institute's economic model. Do you have a problem with the model?
Do I have a problem with the national socialist service tax? Yes, I have a problem with—
No. Do you have a problem with the economic model?
It is also interesting that you have brought forward 16 pages of clarifications to modify your financial memorandum's original assumptions. That suggests that your original model had some flaws.
Have you read the 16 pages?
I have had a look through them.
I suggest that you reread them because there is not one question about the robustness of the economic model. There are questions about the years of comparison but not the economic model. I will repeat my question; do you have a problem with the economic model that is based on the Fraser of Allander institute's model?
As I said already, I have a big problem with the national socialist service tax, which is the model that you are proposing.
Okay. You are not going to answer the question.
I have a supplementary question on the Fraser of Allander institute. The minister is probably aware that the institute's report—to which Tommy Sheridan has referred—was based on the economic impact of the variation in income tax of 3p in the pound that the Scottish Parliament can apply. Does the minister agree with me that given the impact of a model that can vary income tax by only 3p in the pound, it would be difficult to conclude that Tommy Sheridan's proposals would not have an impact?
I am happy to agree with that.
Ha ha—thank you very much, Bristow, for helping out your partner.
The Fraser of Allander model is used in various circumstances, but it is not used to calculate revenues from taxation. As far as I am aware, there was a separate model devised by Danson and Whittam.
We have confirmed that the assumptions underlying the Fraser of Allander institute model are accepted by the Executive as being robust, but that the assumptions had never been used to calculate tax revenues until the business faculty at the University of Paisley did so.
The conclusion of the study that you refer to related to a marginal taxation change of 3 per cent and not necessarily 20 per cent. I am not sure that you can extrapolate, but the model itself is certainly used in various circumstances. However, I am not aware of the model having been applied specifically to the Scottish service tax.
Tommy, I will allow you a couple more questions but I want to bring in other members, after which I might come back to you.
I am sorry—I thought you were letting me in because nobody else wanted to ask questions. I am sorry if I have taken up other people's time.
I did not say that in my submission. What I said was that, when reading your evidence, I noticed that the committee had raised a big question on fiscal flight. It is clearly a matter that the Burt committee will have to address.
I am sorry, but I have written down in front of me "fiscal flight" and "big question".
What I said was that I noticed when reading through the Official Reports of the committee's previous meetings that a big question had been raised by committee members.
I am asking now whether you have any evidence that the bill will lead to fiscal flight.
As I said, I hope that the Burt review will consider the issue. Clearly, introducing a 20 per cent tax rate for the national socialist service tax, in addition to the current 40 per cent tax rate, would have some economic impact in Scotland.
I hope you do not mind my pressing this, convener, but when asking a straightforward question of someone on a considerably high salary, I would expect to get a straightforward answer. Minister, do you have any evidence that the bill will lead to fiscal flight?
As I said already, Mr Sheridan, that is one of the questions that has been posed to the Burt committee. We expect the answers some time in summer 2006. It is appropriate that we wait until the committee has reported. We might then have a definitive view from Sir Peter Burt and his committee on the matter. It is obviously of key importance when discussing your proposals.
Do you have any evidence?
As I said, one reason for setting up the Burt committee was to look into that.
Honestly, minister; I am asking you a straightforward question. If you were to answer, "No—but I am sure that the Burt committee will look into it," that would be acceptable; but you refuse to answer the question and that is not what a scrutinising committee going through the parliamentary process is looking for. I ask you again: do you have any evidence that fiscal flight will result from this bill?
I have no evidence with me at the moment but, as I say, it is a big issue that the committee has raised and we set up the Burt committee to look into such matters.
I will ask a supplementary question. I will bring in other members and I will come back to Tommy Sheridan if we have time.
The Burt committee has been set up to consider all those matters and to report its view. I hope that part of its work will be to study the impact that a national socialist service tax would have on individuals in Scotland.
I will allow David Davidson to come in on this issue if his point is on that.
I take it that the Executive has not supplied a submission to the Burt committee on the basis that it is waiting for the response from Burt, but was fiscal flight specified in the remit of the Burt committee?
I will deal with the first point. It is no secret to anyone in the Parliament that there is a difference of view between the coalition parties in Government about the way forward in respect of council tax and other systems of local income tax. The Burt committee was set up as a result of the political negotiations following the last election. As part of the partnership agreement, it was decided that the best way of taking the matter forward was to agree to set up the Burt committee so that everyone—all the political parties and other individuals—could put forward their views and the independent committee could examine them in detail and report back. Once it has reported, we will be in possession of the facts, which will allow us to decide which way we go forward. Some of us have strong views on one side and some have strong views on the other. That is the position that we are in. The Burt committee is there as a result of the coalition negotiations.
I think that the basis of your reply is that the Executive has not made a submission to the Burt committee.
That is right.
You would not expect the Executive to do so when there is a difference of opinion internally.
The second question was about whether fiscal flight was part of the remit of the Burt committee.
I expect that fiscal flight will be one of the issues that it will consider, certainly in relation to Mr Sheridan's proposals. As you would expect, the remit is wide. I recall from my original statement that the Burt committee has been asked to consider the pros and cons of the various systems.
If you do not know the answer, I am happy for you or someone from the Executive to tell the committee later whether fiscal flight was mentioned in the remit. From what you have said, I think that it was not.
The effect on the economy is part of the remit, so we would expect the committee to examine fiscal flight as part of that.
The number of recipients of council tax benefit in Scotland fell by 12 per cent between 1998 and 2003. Tommy Sheridan's bill proposes to tackle poverty. What has the Executive done to highlight the need for people to fill out their forms and to raise concerns about the complexity of some of the forms?
I ask Nikola Plunkett to outline our proposals to ensure that we get maximum take-up by individuals. It is a big challenge to ensure that all the many benefits that are on offer are accessed by individuals who qualify for them.
Although council tax benefit is a DWP benefit, it is administered by local authorities, so they have been working with the DWP to try to identify people who should be claiming it and are not doing so. One of the biggest chunks of work has been to identify people who are on pension credit but do not receive council tax benefit. There has been some data sharing between local authorities and the DWP.
Because of the complexity of the forms, there has been a 12 per cent reduction in those who receive benefit. If we tackle that, will it go some way towards addressing the poverty issues that Tommy Sheridan has raised?
The DWP has formulated a new three-page form that should be simpler to fill in. At a recent meeting of the Executive and representatives of the Convention of Scottish Local Authorities, we discussed how that form is being used in Scotland and whether we could agree on a simpler and shorter one.
With means testing, if elderly households have savings of £16,000 or more, they are not eligible for council tax benefit. Does the Executive have a view on whether that figure has any relevance to people's ability to pay or poverty levels?
Because the issue is reserved, it is difficult for the Executive to comment. As Nikola Plunkett said, we are trying to ensure that everyone is aware of the benefits to which they are entitled, because poverty is a challenge and we must ensure that the many and varied benefits are taken up.
It has been known for the Parliament to influence debate at Westminster. Is the Executive willing to make representations on the £16,000 figure and its relevance to people's ability to pay and poverty?
I am sure that we will be willing to make representations on those matters. I will discuss them with colleagues and ensure that we pursue them.
On local democracy, I know that you often receive representations from individual local authorities, not just COSLA. Have any of the 32 local authorities in Scotland made the case for the proposal that is before us today being the way forward for their council?
I am not aware of any council supporting the national socialist service tax. Indeed, I see from the policy memorandum that of the 34 responses to the consultation—of which 24 were from individuals—27 were in favour. That shows the level of support that is out there for the bill.
One of the principles of the bill is the redistribution of wealth, so that those who have the ability to pay pay more than those who do not. Would it be more difficult to identify the wealth of people who currently file their own returns to the Inland Revenue and who sometimes work for charity based on their income rather than their homes?
The Burt committee would have to consider that. I have my view, and I am sure that Paul Martin has his, on identifying and helping people who have difficulty paying council tax. As you probably know, many pensioners are concerned about the impact of council tax on them, especially when they are on a fixed pension to which the value of their home and their level of council tax bears no relation. There are arguments about how we tackle that. I return to my original proposition that the parties that have different views have submitted their proposals to Sir Peter Burt. It will be interesting to see how he reports.
But I am looking for an Executive position. Does the Executive recognise that it is easier to identify someone's wealth according to the home in which they live, rather than—for those who are self-employed—the return that they file to the Inland Revenue, which can state that they earn a low income while the home that they live in is in a high-value bracket?
Homes are easily identified and easy to put a value on. However, most people in the country are fully signed up to paying income tax, although concerns exist about the approach to collecting a local income tax.
To give an example, under Tommy Sheridan's proposals, somebody who lives in a £750,000 house in Edinburgh could pay less than they pay under the current system. Is that correct?
Sorry; will you restate the question?
Under the current system, we can identify someone's wealth by the home in which they live. Under the system that Tommy Sheridan proposes, it would be more difficult to recover the wealth.
We would need to calculate what that individual would have to pay and decide whether there was a problem with collecting the tax. I have not done that analysis, so I will not pretend that I have the answer to hand but, if you write to us with the example, we will assess it using the model that Mr Sheridan proposes.
The bill's main policy aim is probably that of redistributing wealth from the wealthy to the poorest in society. Do you accept that somebody who currently receives full council tax benefit and who thus pays no local taxes would not benefit by one penny from the proposals?
I have not carried out a detailed analysis of that matter, but I can say that those who are in the higher income brackets would be penalised substantially under Mr Sheridan's proposals in comparison with the status quo.
The point that I am trying to get at is that, under the bill, the people who are on the lowest incomes in Scotland—those who receive full council tax benefit and who thus pay no council tax—would be no better off, as they would still pay no local tax.
That is correct.
In fact, it is possible that some such people could pay more local taxes because, at present, council tax benefit for families tapers off at about £20,000, whereas the only people who would not pay Mr Sheridan's Scottish service tax would be individuals who earn less than £10,000 a year.
Your point that the poorest in our society—those who receive council tax benefit—would be no better off under Mr Sheridan's proposals is correct. As we move up the scale, we can extrapolate in relation to different income bands to prove various points about the systems that are proposed. As you say, those who are at the bottom end of the income scale would be no better off under the proposals.
Finally, I seek information from you, although I do not expect you to supply it today. During our scrutiny of the bill, I have been trying to ascertain the balance between those who receive full council tax benefit and those who receive partial council tax benefit. A paper from the Scottish Parliament information centre states that 528,000 households receive council tax benefit, which equates broadly to 22 per cent of households in Scotland. The proportion is highest in Glasgow, where 106,000 households, which is 38 per cent of households in the area, receive some form of council tax benefit. It would aid the committee's inquiry if you could, through liaison with the Department for Work and Pensions, break down the figures to show the proportion of households that receive full benefit and the proportion that receive partial benefit. Will you ask your officials to assist the committee in finding out that information?
Yes. We will respond with that information as soon as we can.
We received evidence from Citizens Advice Scotland that a single 25-year-old earning £6,500 a year and living in a band B council tax property would not be eligible for a council tax rebate and so would have to pay a bill of £819 a year. Under the proposal that we are discussing today, that individual would be exempt, because their income was less than £10,000. How do you square that with your statement that those on the lowest incomes would not benefit under the bill?
The point that I was making was that those in receipt of full council tax benefits would be no better off. One can cite examples selectively to support your proposition, to support a local income tax or to defend the current council tax system. We expect the Burt committee to produce a definitive analysis of the systems that have been proposed, which will allow us to make the proper comparisons. It is easy to extrapolate figures to show whether individuals would be better off under different systems. The reason for setting up the Burt committee was to get a definitive view on these matters.
I do not think that you understand the concept of the bill, minister. The bill would exempt the first £10,000 of everyone's income; it is not about individual circumstances. Given that we would exempt that first £10,000, are you telling me that it does not stand to reason that if someone's income was less than £10,000 but higher than £6,000, they would be better off?
That analysis is correct, but one can cite examples across all the income streams to support any of the proposals that have been made to the Burt committee. That is why it is important to wait for its analysis of the various systems and how they will impact on different income groups. It is important for us to have the facts before us.
I am sure that we can correct the record, because you said that those on the lowest incomes would not benefit, which is obviously not true. You said that the bill would leave local authorities near to collapse, because there is no consensus in Parliament about what should replace the council tax, so there would be no way of raising money for local authorities. Do you not see that that is a bit contradictory? If the bill is passed, there will be a way of collecting revenue for local authorities. That is what the service tax is.
It is important to note that the Parliament has debated your proposal for a national socialist service tax on five occasions, so the proposition that it will now suddenly be accepted does not bear scrutiny. The point that I was trying to make was that although we might agree to scrap the council tax—although it is debatable whether there would be enough cross-party support for that—there is no consensus on what should replace it. That is why the Burt committee was set up to allow everyone to feed into the debate and make proposals. I understand that all the political parties have submitted proposals and that all the parties other than the SSP are willing to wait for its report.
I do not know whether the convener has supplied the Executive with the note that the committee has, but you are aware that the bill could be amended at stage 2 to replace national setting of tax levels with local setting of tax levels, which would not contravene the general principles of the bill. The convener has ruled that the general principle of the bill is to replace the council tax with an income-based alternative. The method of collection and setting is not part of that general principle. Do you accept that if the Parliament voted at stage 1 to agree to the general principles of the bill, other parties could then present their proposals?
If you strip out that part of this 17-line bill there will be precious little left. My original remark was that there is currently no majority view on what would replace the council tax were we to pass a bill to abolish it.
I am going to ask you that question again to see whether I can get a straight answer from you.
That is as straight an answer as you could possibly get.
The convener has told us that the bill can be amended at stage 2 to remove the provisions on national setting and to change the methods of collection. I am asking whether, given the convener's ruling, you accept that, if the principles of the bill were agreed to at stage 1, national setting could be replaced by a local setting.
I accept that that could happen. What I am saying is that there is currently no majority view in the Parliament on an alternative to replace the council tax. This seems to be nothing more than a political stunt to try to hoodwink the Scottish people into believing that there is such a majority. We need to take people with us in this debate if we wish to see the council tax system replaced or changed. The Burt committee, once it reports, will aid us in making progress on how we might go forward.
Let us return to people on the lowest incomes, who we are told would benefit from the bill. Will you reaffirm that if someone currently pays no council tax, even if they still paid no Scottish service tax, they would be no better off under the bill?
That is perfect logic, convener.
You will be aware that council tax benefit is complex. Will you confirm that council tax benefit would not disappear for all households at the figure of around £7,000 to which Mr Sheridan referred—for example, a married couple with one pensioner in a household would continue to receive council tax benefit up to an income level of £239 a week if they were in a band A house and £275 a week if they were in a band D house? Will you confirm that those figures go considerably beyond the levels of income that Mr Sheridan indicates and that, for families with children, the figures are higher still?
I would be happy to write to you to confirm that your figures are correct, when I have had the opportunity to examine them in detail, if you are content with that.
To help you, I refer you to the briefing that the Scottish Parliament information centre researchers have produced.
I will ask my officials to have a look. We will write to confirm that we believe that those figures are correct.
That brings us to the end of questions for the minister and his officials. Thank you very much for your time this afternoon.
The bill poses a fundamental challenge to the committee. Do you accept the fact that there are shameful and persistent levels of poverty that scar our small but wealthy nation? If so, are you willing to use one of the precious few tools that we have at our disposal to do something about that instead of just talking about it?
Thank you. I will kick off the questions. I have asked other witnesses how people on very low incomes would benefit from the tax. I have been trying to get accurate information on how many households are in receipt of full council tax benefit. Do you have an estimate of how many such households there are? If so, could you advise us what the source of that information is?
My evidence to you is that those who are currently in receipt of full council tax benefit would benefit from the introduction of the bill threefold. First, they would be excused the humiliation of having to complete a means-testing form in order to get their benefit. Those who are subjected to the means test consistently tell us that it is humiliating. Secondly, a significant barrier to those individuals entering employment would be removed. Currently, if the individual on £6,000 a year to whom I referred earlier were to get a job that paid £6,500 a year, they could go from getting full council tax benefit to getting no council tax benefit. That high taper effect of the withdrawal of benefit is a barrier to people entering employment at the lowest level. Thirdly, the poorest would gain because of the extra money that would be spent in the economy on local government jobs and services, which would improve not only the services that they receive but, hopefully, their chances of entering employment.
Paragraph 56 of the policy memorandum states that, in August 2003, of the 523,900 households that received some council tax benefit, 178,300 low-waged households, including 107,000 pensioner households, still had to pay some council tax. Those figures come from quarterly statistics published by the Department for Work and Pensions and the Scottish Executive's "Benefits and Tax Credits in Scotland" report for August 2003.
To be absolutely clear, you are saying that 178,300 of the 523,900 households that are in receipt of council tax benefit receive partial benefit, which means that 350,000 or so households are in receipt of full council tax benefit.
That is the implication, yes.
Mr Sheridan, I hear the argument that you are making about the removal of barriers to employment. However, the figures that we have just heard seem to suggest that, on the first day of the introduction of the Scottish service tax, 350,000 of the poorest households in Scotland would not benefit by a single penny to their disposable income and would benefit only if they moved into employment in the future or if the effects on local services that you predict came about. I want to return to that issue later, but will you confirm that, if their incomes remained the same, those 350,000 households would not be a single penny better off on the first day of the Scottish service tax than they were on the final day of the council tax?
Again, I refer you to the policy memorandum, which states that 72.68 per cent of households would benefit, and I continue to argue that those to whom you refer would benefit. People would be able to benefit financially through the removal of the real barrier to employment at that low level—to say that there is not a barrier would go against all the evidence from the DWP. However, the benefit that I am talking about is the removal of the humiliation of the means test.
Do you accept that there has been a mixture of universal benefits and means-tested benefits in the United Kingdom welfare state for many decades and that many people access cash benefits and other state means-tested benefits without suffering what you describe as "humiliation"?
Not at all, minister.
I am not a minister, Tommy.
I am sorry, convener. I would have promoted you—I hope that the news from the past couple of days does not mean that your promotion is being put on ice.
I am sure that we will discuss some of the points that have been made in the plenary debate. However, many of the wealthiest people in society will benefit through the provision of a universal benefit. The simple point that I was making was that there has been a mixture of universal benefits and targeted or means-tested benefits in the British welfare state system for many decades. I asked you to recognise that fact.
I have already confirmed that, but caution you about almost dismissing the benefit of not having to fill in a form. People around this table do not have to fill in such forms and therefore can easily dismiss the significance of having to fill them in, but I assure you that those who work with the lowest-income groups and those who must fill in the forms find the process intrusive and humiliating. Throwaway remarks should not be made about people not having to fill in forms, as not having to do so is a real benefit.
I accept that and hear your argument, which I have said we could debate. However, I am simply asking whether the people in question would be financially better off on day one of the Scottish service tax. I hear your argument about removing barriers to employment, but there could be other ways of attacking that problem—there could be a better taper of the benefits system, for example; we could also debate that issue all day. I simply ask, on day one of the Scottish service tax, would those 350,000 households be financially better off?
On day one of the bill's coming into force, those 350,000 households that you have identified and 1.6 million to 1.7 million others would benefit from the removal of the need to fill in a form, extra services that are provided as a result of the extra money that is generated and the removal of the income barrier, although the 350,000 households would not directly benefit from an improvement in their disposable income, unlike the 1.7 million others who would.
The indirect way in which you have answered my question would befit an Executive minister.
The difference is that I have answered the question.
Before I bring in colleagues, I want to ask you about another matter. Again, I am sure that it will be no surprise to you that I am raising the question of how the bill's introduction would impact on the general Scottish economy and on public services. I raise that question not because I worry about the interests of multimillionaires who have highland estates, but from a genuine concern that the bill's impact would chase many high-earning but necessary public servants, such as national health service consultants, from Scotland to England.
You are asking me whether I accept Professor Bell's opinion, which was all that he offered us. He did not give us any empirical evidence whatsoever to back up that opinion. In fact, the paper that he subsequently sent to us actually backs up the bill's argument because it determines that the income tax system can be manipulated, particularly at the lowest levels, to encourage those not in employment to take up employment, if it is ensured that there are rewards at the lowest income levels through not withdrawing benefits.
It is not actually illegal for somebody to choose to work in Newcastle or Manchester as opposed to Glasgow or Edinburgh. By seeking to work in Newcastle or Manchester, an NHS consultant would face a tax bill that would be 20 per cent less. I was talking not about illegal evasion of taxes but about people's behaviour changing due to the taxation system and that having an impact on the NHS. We could debate many issues to do with Scotland's need to improve its health service, but I would not have thought that chasing away some of our most highly skilled consultants was a way of improving the health of the people of Scotland.
Yes but, with the greatest of respect, what you are talking about is your opinion, which you are perfectly entitled to display. You have done so at several of the evidence sessions, but you have produced not one iota of evidence to suggest that there are consultants in Scotland whose patriotism and commitment to the health service in Scotland is so frail that, if they were taxed a bit more for the benefit of pensioners and low-paid workers, they would up sticks and leave. In fact, the evidence from the Citizens Advice Scotland witness, who is a former doctor, was overwhelming, He made the point that the single biggest factor that determined where health workers work is not pay but the number of hours they must work and the general working conditions.
With all due respect, it is not for me as a member to produce the economic analysis to prove or disprove the bill. It is incumbent on a member who is proposing a radical change in the taxation system to prove that they have undertaken all necessary research into the economic and social impacts of their bill. It may be just Professor Bell's opinion that the bill will have an impact on consultants. I am suggesting that, before you introduced a bill that would bring about a radical reform of the taxation system, it might have been prudent for you to have carried out detailed analysis of the bill's impact on individuals and hence the Scottish economy and public services.
I refer you to the only evidence that has been submitted on the question. The evidence that was submitted by Professor Danson et al, which referred to Kay and King, made the point clearly that all academic studies have shown that the idea of fiscal flight is anecdotal and not evidence based. Professor Bell's criticism of the evidence was that it was produced a long time ago. That is a fair enough criticism. However, until there is newer evidence to disprove the research by Kay and King, it is all that we have to go on. For that reason, I think that we have produced the evidence to indicate that there will not be the fiscal flight that Professor Bell and others suggest there will be.
If it were proved to you that there would be fiscal flight and that it would result in a loss of consultants to the health service, would you withdraw the bill or carry on regardless?
The claim could not be proved, unless consultants are a bunch of people who are totally unconcerned about society as a whole. I reject that contention 100 per cent, because consultants tend to be dedicated to society and to serving our health service. However, even if it could be proved that the bill would cause fiscal flight, its other aspects are so important that I would not withdraw it. We are concentrating on a tiny percentage of people at the top. Why are we not concentrating on the pensioners and workers on average pay? Why are we not concentrating on those who would benefit from the bill? That is the crux of the bill. I would not withdraw the bill if it were proved that it would lead to fiscal flight. However, that is a completely nefarious argument, because it will not be proved.
It will. I will move on to other questioners, but I make the point that I started by asking about the 350,000 households on the lowest incomes that would not benefit from the bill. The issue of consultants was a secondary line of questioning. I did not ask solely about the potential impact of the bill on consultants.
Mr Sheridan, I take you back to your opening remarks. You said that pensioners and the working poor have problems with the impact of all forms of taxation on their lives. No one disputes that. Have you examined whether there are other taxation systems that could be amended to provide the same solution as the one that the bill is intended to provide? If so, what are your conclusions?
The investigation that I carried out before introducing the bill was based on the powers that the Scottish Parliament has. The Parliament has no power over council tax benefit. Sadly, it has no power over pension levels. However, we have power over local taxation; that lever is within our grasp. The Scotland Act 1998 may not have been written tightly enough, which has provided us with a wee chink of light that enables us to do something radical to tackle poverty. The power is there. We do not have the ability to increase the top rate of income tax. We are left only with the power to vary the basic rate by 3p upwards or downwards. The problem with that is that it would not reduce inequality. Instead, it would accentuate inequality, because varying only the basic rate of income tax hits hardest the workers on average pay whom I am trying to benefit.
I cannot agree. If we reduced the basic rate by 3p, everyone in the country would benefit. You have not considered that possibility, which is fair enough—you have given an honest answer.
Absolutely not. With any cost-benefit analysis, it is important to look at both sides of the equation. If we simply reduce general taxation across the board by 3p in the pound, there will be less money to spend on services. As a result, something that you suggest will benefit everyone actually represents a loss for everyone. That is why such a cost-benefit analysis must be carried out.
That comment is interesting. However, what happens if the role of local government changes and it assumes other, additional roles and responsibilities that have been removed from other departments? Where is the money for that extra spend going to come from? Presumably, if one ring fences money, one names the services for which it is being ring fenced. It cannot simply go through the local town hall coffers, because the local authorities might take over new duties such as running the trunk roads. Have you thought about that argument?
That argument was addressed by the Presiding Officer's legal team, which stated categorically that the proposal can remain legal only if the money that it generates is spent on local government jobs and services. If local government's remit expands to take in other services, those services will become local government services, the jobs created will be local government jobs and the money can be spent on them. Of course, if local government took on extra roles and responsibilities, we would expect central sources to make extra funding available for that. We sometimes forget—although I am sure that you, with your local government background, do not—that we are talking about a tiny percentage of overall local government finance. I am simply proposing that we manipulate a 20 per cent pot of money to reduce poverty in Scotland.
But you must accept that your proposal becomes risky if, as COSLA has claimed in certain documents, local government is already not funded adequately for certain statutory services—or for new burdens, as they have been called in some cases. How would diluting the amount of money available through any form of local taxation help you to achieve what you want to achieve?
I can debate with you only on the basis of the current situation. At the moment, the bill's proposals would generate in a much fairer way several hundred million pounds more for local government expenditure than the council tax. I am sure that you accept that I cannot be held responsible for hypothetical situations such as any further reductions in local government expenditure that the Executive might make. There is no doubt that the bill represents a boost to local government.
If fiscal flight occurred, would your rates have to be increased to maintain—or even improve on—what you hope to be the status quo?
I do not expect fiscal flight to result in a rates increase for the majority of payers in Scotland. According to the detailed breakdown from the Inland Revenue, about 11,000 people earn an income of more than £90,000 a year. The percentage take from those people is small compared to the overall take; as a result, under your very hypothetical suggestion that 10,000 of those 11,000 would suddenly lose their patriotism, find that fair taxation does not suit them and leave the country, any surplus that would be generated would be reduced, but my arguments would remain robust.
Why do you assume that people who earn £90,000 or more a year would be most affected? Why do you not assume that people who are in the middle-income bracket and who have high mortgages and a young family would look over the border for a job?
The Executive figures show that the average salary in Scotland—the "middle-income bracket" to which you referred—is £20,000 per annum. If two workers earn the average salary, that gives their household an income of £40,000 and puts the household into the top 20 per cent in Scotland. Under the Scottish service tax, they would each pay £450 a year, so the combined commitment from the household would be £900 whereas, as you are aware, the average band D council tax payment is £1,095. Therefore, even the middle-income earners that you talked about will gain under the proposed tax system.
Such people do not see the matter as you have explained it, but I see where you are heading. People in the banking sector from Scotland who are sent to the Isle of Man to work have a fairly beneficial income tax rate, so their income in real terms has to be made up when they come back to Scotland. In other words, the financial sector accepts that tax is an issue in attracting people back to Scotland. How would that change under your proposal?
On the point about the Isle of Man, it is difficult to generalise based on a single example and you have not provided specific information. My argument is that Scotland as a whole will benefit from the tax, because of the £300 million-plus extra expenditure by local government and because of the extra disposable income of the overwhelming majority of Scots, who would then purchase more goods and services, which would generate demand. Given that evidence suggests that people on low incomes tend to spend extra revenue locally, the tax would have a beneficial economic effect on small local businesses.
I just asked whether, when you talked about removing the means test, your proposition on the ability to pay was based on income, ownership of property or on both.
The bill attempts to deal with people, some of whom are high profile, who use Scotland as a bit of a playground. They have large estates or property and pay a tiny percentage of their income in council tax—they usually pay the second-home rate, which is lower than the normal rate—but earn their living in England. Under the bill, owners of heritable property or beneficiaries of trust deeds for heritable property—people often put their property into trust deeds to try to hide the fact that they are the owners—would be liable to pay the service tax based on their UK income. Therefore, the Al Fayeds of the world and other prominent people who own large tracts of land in Scotland would not have such an easy existence. We would have a problem if an individual from a country that does not have a taxation arrangement with the UK bought a large tract of land here. If we could not establish such a person's ownership, we would have difficulty in taxing them. However, the bill's underlying principle is that, although income is not a perfect definition of wealth, it is the closest definition. Differences and exceptions will obviously arise, but we believe that income is the most accurate reflection of a person's wealth.
I have a point that was made to me at the weekend by two pensioners who had scrimped and saved over the years and had recently made wills. They came to me because the husband had become unwell and they were asking whether, if the husband died and the wife was left and still had a pension and a taxable income from savings over the years, she would have to sell her property under your bill—if it was passed—to fund that burden. In other words, they wanted to know whether she would have to downsize and move, even though they had been in their family house for years. It is always bad to use just one example, but I would like to hear your comments on that.
She would have to have a hell of a large income if that were to happen. You must be talking about £500,000 to £1 million.
No—but that is the threat that they see. How do you answer those people?
I answer by telling them that they are wrong. I hope, David, that you have not been misleading them.
I do not think that that was a good example for you to reply to. It would be difficult to reply to that example.
It is one of the examples that are in the air.
Mr Sheridan, your party has made a submission to the Burt committee, but you are still progressing your bill here today. Can you tell us why?
That is simple. The Burt committee has been established with a specific remit; if the bill is not passed, the next line of battle moves to the Burt committee. Therefore, it would have been stupid not to have made that submission, given the confidence that we have in it. Andrew Arbuckle, as a Liberal Democrat, is convinced—I have 16 or 17 pages from his website telling me how convinced he is—that the council tax should go. He has made up his mind before the Burt committee draws its conclusions, so I am sure that he cannot berate me for making up my mind before listening to that committee.
It is not a question of whether I have made up my mind. What I am curious about is that you seem to be unprepared to let the independent Burt committee examine your proposal and judge it on its merits and its flaws. That is what concerns me.
With the greatest respect, you have just contradicted yourself. You have berated me for submitting our proposals to the Burt committee. Now you are berating me for not allowing it to examine and analyse our submission. You cannot have it both ways, I am afraid: either we are scared of the Burt committee or we are not, and we patently are not.
For you to say, "You can't have it both ways," when you are trying to have it both ways is quite incredible. However, I would like to move on.
I think that you had better.
In your introductory remarks, you mentioned that a large percentage of the population is in favour of a local tax, so I find it contrary that you would introduce a national tax.
I have given you a copy of the poll. It is among your papers.
The contradiction is between the people wanting a local tax and your wanting to introduce a national tax.
Let me answer the question. I know that it is uncomfortable for someone who campaigned to abolish the council tax not to now support a bill to abolish it. The question was quite clear: people were asked whether they believed that the council tax should be removed and replaced with a system that is based on ability to pay. That question was asked in 2001—you have it in front of you and can read it out if you wish—and 71 per cent of respondents said that it should. The same question was asked again, not by the Scottish Socialist Party but by System 3, which is an independent polling organisation, and the number of respondents who said that the council tax should be removed rose to 77 per cent. If you read further through the poll results, you will see that respondents were asked whether they would support my bill to replace the council tax, and 66 per cent said yes.
I would not be worried about that.
Before you go on, I would like to ask two supplementary questions about the polling information. First, I note that the questions start by stating that
The polling organisation would be expected to be able to answer that question, but it told us that questions are always asked in that way. The organisation said, "The council tax is unfair. Yes or no?" You think that is pejorative—others might not.
A fairer way to phrase the question would be, "Would you support the retention of council tax or its replacement with a local government taxation system that is based on the ability to pay?" That question might produce the same result—I do not know. However, putting a pejorative term in the question is likely to produce an unreliable result.
It is interesting that the same argument was used by critics of the YouGov poll on support for 90 days' detention without arrest. YouGov first asked whether people were frightened of terrorist attacks following the 7/7 bombings, then asked whether people supported 90 days' detention.
I did not mention the opinion poll to which you referred, but I was going to. I presume that you adopt policies not purely on the basis of whether they receive popular support in an opinion poll, but on principle. Why, in that case, should we be encouraged to support the bill purely because an opinion poll suggests that it is popular?
Absolutely—I could not agree with you more about our policy. However, if you check the Official Report, you will notice that Andrew Arbuckle asked me about the opinion poll and I responded to his question. I do not think that a big part of the evidence for supporting the bill is that the overwhelming majority of Scotland supports it. That is not a bad reason, but it is not the overwhelming reason. The principal reason is that the bill would be an anti-poverty measure.
I presume that you oppose what was proposed in the debate last week in the House of Commons, although the relevant opinion poll suggested majority support among the population.
Absolutely. If you stand up in Parliament in December to say, "I oppose this bill even though opinion polls say that we should support it," as I am sure you will, I will respect that position.
My final point before I hand you back to Andrew Arbuckle is that we are discussing the opinion poll partly because you included it in the dossier of evidence that you submitted to the committee.
Absolutely. I am sure that the committee agrees that I should have done that. If I have background information that I will refer to, I should provide it.
Will you reiterate where you stand on debt write-off? As you heard, in excess of £700 million of tax is unpaid. You have previously said that you would prefer any debt to be written off after two years. Is that your position?
Absolutely. We do not disagree with the response that Nikola Plunkett gave today. We are debating not the amount of outstanding debt, but the amount of debt that can be collected. Gordon Morgan gave the Finance Committee a detailed analysis that took up most of the extra pages that he was asked to submit—it appears that one can be asked to submit extra pages but be criticised for doing so. In that analysis, he explained in detail how we arrived at our figure. It is not a question of saying that there is £X or a lower amount of debt. We accept the amount of debt. What you must question is whether that will be collected. Do you suggest that the £700 million will be collected? If you do, that runs contrary to experience of the past 10 years of collection.
I am asking the questions, not you. I will continue to ask the questions. Last week, a Chartered Institute of Public Finance and Accountancy representative expressed her unhappiness at the thought of debt write-off.
That scenario is interesting. Obviously, it suggests that the Lib Dems would find a backbone and that the SNP would stick by what it is supposed to fight for by voting for the bill. I know that that is a hypothetical situation, but if that happened, the current arrangements for the collection of council tax would ensure that, with the two-year run-in, we would be able to collect just as much as we are collecting now. Various arrangements are in place, including direct debit payments, wage deductions, and so on. I do not think that collection would be a problem. If that was the only reason why you were not going to support the bill, I encourage you to find the courage of your convictions and support it.
No, it was just another point about a seriously flawed proposal.
I have several questions. You said earlier that fiscal flight and tax evasion by high earners is not the most important consideration for you, but that your main concern was about people at the other end of the scale. Is that correct?
Yes. I am sure that you, as a socialist, will share that concern.
I have a concern, which is why I must ask you the following question. Last week, an academic from the University of Strathclyde said that there is ambiguity about the amount of money that would be collected simply because there are unknowns. One of those unknowns is fiscal flight, but I am asking about tax evasion. If higher earners have to pay more tax, it seems to be logical to me—as it obviously did to Professor David Bell and to others—that people will try to find a way around that. They are doing so now. Therefore, as the lady from Strathclyde university admitted, it is reasonable to think that that will continue. Why are you not concerned about that? It would have a direct effect on the amount of money that would be collected.
I hope that you will prod me if I have got your questions wrong. I will try to answer your first question first.
I was asking more specifically about tax evasion—some of it legal, some of it not legal. An academic from the University of Strathclyde said that there was an element of doubt about how much money would be collected under the service tax. I am linking that to—
I thought that I had answered that point in response to David Davidson's questioning.
Okay.
If we were talking about a couple of million pounds extra being raised from service tax compared with council tax, your concern might become real, but we are talking about more than £300 million extra. You referred to a potential effect of increased tax evasion, which I do not accept. We do not accept people defrauding benefit, so we should not accept people defrauding taxation. We should enforce our taxes, if they are legitimate and fair. A loss of £13 million might sound like a lot of money, but it would still leave us with £300 million extra compared with the council tax.
I fully accept Tommy Sheridan's figures for the top level of taxation at the time when the Thatcher Government came to power, and indeed when the change took place that reduced the top rate from 60 per cent to 40 per cent, which I think was in 1988. You have suggested that taxation has been a factor, albeit a small one in relation to other factors. We have mentioned issues such as family ties, language, public services and the quality of life. On fiscal flight from the UK prior to 1979 or 1988, such flight would on the whole have involved a considerable breaking of family ties and language barriers.
I do not accept that—perhaps because I do not accept that individuals will so easily uproot from Scotland and go to England. Once someone has a family, a job and local ties, it takes an awful lot to persuade them to do that, particularly at the income levels that we are discussing. You might be talking about people who earn £150,000 to £200,000 per annum but, as far as the average worker is concerned, I have given figures from the Executive, which said that the average salary in Scotland today is £20,000 per annum. If two workers are earning £20,000 per annum, why would they up and leave Scotland because of the bill? They would actually gain under it if it were passed because they would pay less. There is no incentive, in that respect, for average workers to leave.
Do you accept that moving from Finland to other countries that have lower taxation would involve individuals having to overcome language barriers in order to maintain the same level of income? A person who moved from Glasgow to Manchester on the other hand, would not—unless they had a particularly thick accent—be likely to experience a language barrier.
They would have more than language barriers. You are suggesting that people want to move. I am asking who you are trying to identify as those people who want to move. We have used figures that have been supplied to us by the Executive. The figures tell us that the average salary in Scotland is £20,000 a year. I am saying that a couple who both earn the average salary would gain financially from the bill. Why would they want to move to Manchester?
I hear what you are saying about people who earn average salaries. I take it that that means that you are fairly complacent about teachers, academics and doctors moving to Manchester and Newcastle.
I have provided you with evidence in a table that outlines the average salaries of teachers, firefighters, nurses and others and shows that there would be significant gains for them, as well. We are talking about a win-win situation for the overwhelming majority of Scottish workers. There would be no incentive to up sticks and leave Scotland.
I am sure that we will continue to debate that point in Parliament.
Who devised your survey, where did you get advice about conducting the survey and how were the 900 people selected? Were they selected randomly?
Until recently, System 3 worked consistently for The Herald. The Tories despised those polls, claiming that they always undermined their support, and Labour enjoyed them, because they thought that they always inflated their support. In fact, at election time, the System 3 polls were always found to be accurate, within a percentage point either way.
I have to say that I do not have the additional material that Mr Sheridan is talking about.
What paper is that?
The paper that contains the extra information that Mr Sheridan has outlined to us.
All I can say is that I sent electronically the full report from TNS to the clerking team. That report has at the back of it a breakdown of the numbers of people who were interviewed, when they were interviewed and where they were interviewed. If it has not arrived in that form, we will send it again.
Pages 4 and 5 of the report appear to be blank.
I do not know why.
If you could send us copies of those pages, we will circulate them to members.
You will know that during our consultation on the bill there has been a debate about the democratic deficit that your bill might create in relation to local authorities. Last week, Mr Whittam trotted out the tired cliché that Parliament does not have tax-raising powers and that there is therefore no democratic deficit and challenge to the authority of this Parliament. However, that was proven not to be the case. We have the powers but choose not to use them, which means that there is no democratic deficit. As that argument did not stand up to scrutiny, have you any other arguments against the view that your bill will create a democratic deficit in relation to local authorities?
I do not accept that Mr Whittam's argument had no basis. He said that the fact that Parliament chooses not to raise the money that it spends does not make it any more or less accountable to the electorate that it serves.
I agree with a lot of that, but not about Mr Whittam's answer. I would like to return to your point that to address the democratic deficit you would return to local authorities the power of setting and collecting business rates. Why does your bill not allow for that?
The advice that we received from the non-Executive bills unit was that the bill was already complex for a member's bill and that adding that measure would take it over the limit of what could be scrutinised. As I said in September 2003 when I submitted the first proposal, I would have wanted a different bill saying that we would replace council tax with an income-based alternative and that we would deliver the form of that alternative at stage 2. That was ruled out of order, so the bill is a product of parliamentary advice rather than of a lack of political will.
Your argument for local autonomy and democracy to be upheld is predicated on a return of the business rate to councils, yet your bill does not allow for that. We are being asked to take away from local authorities their tax-raising powers, but you are not giving us the power to give them something back. Regardless of its cause, is that not a major flaw in your proposal?
Not in the slightest, because even if we do not give local authorities the power to set their non-domestic rates, the bill will stand or fall on whether it tackles poverty in Scotland and redistributes income. That is the most important aspect of the bill. Whether local authorities get to raise their own money is a secondary issue for me and, I assure you, for the communities that you and I serve—they want services to be delivered well and they want to live in a fairer Scotland where they pay less tax. Those are the most important considerations. However, you should bear in mind the fact that the Parliament has the power at any stage to return non-domestic rates to local authorities, which is where they belong.
Again, I could not possibly disagree with you that, although the non-domestic rate is a major consideration, it is secondary to income redistribution. That is where your financial memorandum comes in. It is supposed to give us information that we can rely on. You helpfully gave us your financial memorandum clarifications document, which you produced with Gordon Morgan following your discussions with the Finance Committee in order to answer some of that committee's questions. However, under the first heading, "Who Gains and Who loses from Abolishing the Council Tax", which you believe to be the primary motivation behind the bill, you state:
You have just answered the question: the policy memorandum dealt with the matter directly, whereas the financial memorandum dealt with it tangentially because it was a financial memorandum. In fact, when I appeared with Gordon Morgan at the Finance Committee, we were directed several times not to discuss policy, because that was not what we were there to discuss. We have done what we were advised to do. I would have thought that, rather than criticising us, you would want to applaud us for having taken the time to answer in detail the questions that were raised at the Finance Committee. The policy memorandum deals with gainers and losers directly.
I am not going to disagree, although I am surprised by what you say. I am sure that I have heard you berating ministers in the Parliament for not producing robust financial memorandums to support their bills. If you are now saying that financial memorandums are not really that important—
What I am saying is that the financial memorandum is not the place to promote policy. You criticise me for not promoting the central policy in the financial memorandum. That is because we do that in the policy memorandum.
Let us look at the analysis of the financial memorandum clarifications document, which, under the heading "Methodology", refers to the breakdown of households in each income band. That is about households, yet in our evidence sessions you repeatedly referred to individual income and dismissed the collective household income figures. Why, if your methodology is based on an analysis of households, does your policy memorandum make such a play of individual incomes?
That is utterly wrong, Michael. It would benefit us if we concentrated on individual income, because the service tax is an individual tax. The SPICe research outlines assumptions not in our original model and does not take into account council tax and other benefits. The research illustrates that concentrating on household income rather than on individual income is more likely to undermine some of the gains.
I will repeat an example that I gave last week—and I commend Professor Cooper for her honesty in accepting the analysis that I put forward. My example concerned two people who earn less than £10,000 per annum each and are in the same household with a combined income just short of £20,000. It is quite feasible that they would pay nothing under the Scottish service tax. The example was also given of a binman who earns £17,500 per annum and is the only income earner in his household. Even though he earns £2,000 less than the couple next door, he would be paying more than £300 in tax. I fully accept that he would still be making a saving of £10 per week, for which your proposals are to be commended. Your bill aims to address unfairness, but how can it be fair for a household that is just short of an annual income of £20,000 to pay nothing while their neighbour, who has an income of £17,500, would pay £300-odd? By concentrating on the winners and losers at the top and the bottom, you completely ignore the unfairnesses that your system creates for those who are on, as you said, poor incomes. Your proposals would treat them unfairly.
Michael, I am glad that you referred to your example, because it was a good argument in support of the bill. You recognise that a binman would save £10 a week under the proposal, but that two individuals—perhaps hospital porters or factory workers—on less than £10,000 a year would save more than the binman. We have a win-win situation—they are all saving.
Tell the binman that—he would be paying for his neighbours' services.
But he would pay less than he pays now.
I accept that.
Your argument is that the savings that everybody would get are not enough and that the binman should get more. That is fair enough. My argument to you is that we have to start somewhere. The bill is a fundamental assault on poverty, which would give the binman an extra £10 a week in his pocket and put extra income in the pockets of the two individuals on less than £10,000 a year. I am grateful that you accept that, but I hope that you also accept that, compared with council tax, the service tax would give rise to significant savings for all the workers that you spoke about.
If you accept that I see some merit in your arguments, is it not possible under any circumstances that you could agree that the council tax could be amended to address both the problem of the low-paid worker and the unfairness whereby a low-paid worker pays more than people in the house next door who have more income than he does?
No, for two reasons: number 1 is that we in Scotland do not have power over council tax benefit. Those who suggest that the way to make the council tax better is to amend the council tax benefits system—
I was not talking about the benefits system; I referred to council tax. I meant the bandings.
Inherent in all the evidence that the committee had from COSLA and others is that the council tax benefit system needs to be changed. Do you accept that?
Yes.
We do not have the power to do that, so to accept your suggestion would be to pass the buck and an abdication of responsibility. We do not have the power over council tax—
But we have the power to take the binman out of the tax band that he is currently in and put him in a lower band.
That is an interesting question, which you should perhaps ask the Scottish Executive. If you are suggesting that the binman who earns £17,000 a year can have his exemption under council tax increased, you might be questioning the Scotland Act 1998. Let us ask that question. You asked whether the council tax system could be amended to administer and deliver the anti-poverty measures that my bill proposes. My answer to you is no: number 1, because we do not have the power over the council tax benefits system; number 2, because property is no longer anything like an accurate reflection of a person's ability to pay.
I want to wind up questions, because we are over time. The member who has not spoken so far is Fergus Ewing. I might bring in other members to ask brief supplementaries, but they will have to be very brief.
First, I am sorry that I was not here at the start of the minister's session. I was helping somebody to fill in a form, an issue on which Mr Sheridan remarked earlier.
We asked COSLA—as I think the convener did last week—to provide us with a detailed breakdown of the number of staff in the 32 local authorities who are employed directly to collect council tax. COSLA told us that it did not have such a breakdown. I do not know whether the convener has been more successful than I have in getting those figures. We estimate that approximately 3,000 staff are deployed mostly on the collection of council tax. We suggest that those individuals will have to be retrained and redeployed in other income maximisation programmes. If we get our way and the rates system is relocalised—I know that Fergus Ewing opposes that—there will be extra work for staff with financial experience. In other words, there is no need for any redundancies. We have the money available for redeployment and retraining. If our proposal was that we would produce the same amount of revenue or perhaps a little more, Fergus Ewing's question would be a fair one. However, the fact that we will produce more than £300 million more means that it is his question, rather than staff, that is redundant.
How much will it cost to retrain and redeploy the 3,000 staff whom you mentioned?
In the financial memorandum, Gordon Morgan estimates the amount that will be available for that. I think that it is about £6 million or £7 million.
We assume a three-month retraining process. We could work out the average cost per member of staff.
Yes, but that is only for retraining. You also mentioned redeployment. How much will it cost to redeploy 3,000 people? To put the matter neutrally, I should say that you have not specified what those people will be doing. How much will it cost to continue to employ those 3,000 people, on top of the £6 million in training costs that you mentioned?
For the benefit of Fergus Ewing, who often pretends to have a financial understanding, I point out that the £313 million saving that is mentioned does not relate to staff. There will be no reduction in the amount of money that is available to employ the current level of staff. In fact, we estimate that there will be a significant number of new employees in relation to the bill.
As somebody who was an employer, I can tell you that, if you have staff, you have to pay their wages, and that costs something. I did not have 3,000 staff, but each of those employees will expect to be paid and we want to know how much that will cost. I would expect to see such detail in the financial memorandum.
Perhaps I could answer that. We are talking about less than 1 per cent of the people who work in the administration of local government. I have been involved in local government for 20 years, during which time there have been many changes, including regular reorganisation of departments and redeployment and retraining of staff. Within a reasonable period, there would be such changes and we would achieve savings on administrative costs by moving people into other functions. I accept that those other functions are unspecified, although we have identified the administration of non-domestic rates as an area of work by local government. People would be redeployed in other areas, too. At that point, we estimate that there could be a saving of £50 million in the central administration finance function.
Will you explain how that £50 million is calculated?
We think that 3,000 people are employed in the administration of council tax, but the cost of council tax collection comes from the Accounts Commission for Scotland, which produces accurate figures showing what the councils say they are spending on the administration of council tax each year. Although COSLA cannot break down the figures to show how many individuals are employed, we can take the figure of £50 million or so that is being spent—the accurate figures are in the policy memorandum—to make a rough estimate of the number of people.
Are you saying that people are to be made redundant? Mr Sheridan has said no. If the £50 million is not made up of redundancy payments, how is it made up?
On day one, those people would be in post. There would not be any savings. If, over three to four months, those people were deployed to other areas and other functions, we would have saved £50 million. If we are talking about redeployment to other necessary services and the fact that normal turnover rates account for about 1 per cent of a corporation's staff over six months, there would be no redundancies or compulsory lay-offs. The Executive is continually finding new things for local government to do, so it is reasonable to say that there will be functions for those people.
When I have talked today about the surplus generated for expenditure on local government jobs and services, I have not included the savings that will arise from moving from a locally administered and collected tax to a nationally administered and collected tax. The reason why the extra revenue generation does not include those savings is that, in our proposals, we envisage that the money should be used for redeployment and retraining. There is therefore no need for any redundancies.
Can we leave the debate on Faslane to another day?
I am just trying to stick to the point, convener. I think that Mr Morgan used the word "if" a couple of times, but if we just stick with the £50 million or so savings, those savings will be made because the people who used to be employed in local authorities collecting the council tax will be working in another council department—for the sake of simplicity, let us call that department the redeployment department. Because their wages will be in another budget line—because they will be paid £50 million by the redeployment department—there will be savings of £50 million. Is that right?
No. I am sure that it is no surprise to the committee that Fergus Ewing is being deliberately mischievous. If I was suggesting that an extra £363 million rather than £313 million—I would be including the £50 million extra savings from a change in administration—would be available to spend on local government jobs and services, you could say, "Wait a wee minute. How can you use that money twice? You can't use £50 million for extra expenditure in local government and for redeployment and retraining." However, I am not saying that. The money is not used twice; it is used only once. It is used to ensure the continuity of employment for those employees who no longer have a task because we have got rid of an unfair tax. I thought that Fergus Ewing wanted to get rid of an unfair tax—although perhaps, as with so many other things, when it came to the brink he decided to withdraw. That will remain to be seen.
Well, I am asking the questions today. At present, local authorities collect water and sewerage rates for Scottish Water. Is the cost of doing that included in the bill's financial memorandum?
No, absolutely not. It is not part of our considerations. Water authorities pay local authorities an agency fee to collect their water and sewerage rates. We think that, from a political and policy point of view, it is confusing and unacceptable that water and sewerage bills continue to be issued along with council tax bills. That leads to arrears that are in fact water and sewerage arrears but are counted as council tax arrears for those who are on full benefit. It is time that the water authorities had their own system of collection rather than piggybacking on local government.
That may be so, but if the water authorities do what you suggest, the money that they currently pay to local authorities—let us just call it £10 million for the sake of this discussion—would be lost to local government and, I presume, would have to be found from somewhere else. Alternatively, would it be met from the redeployment department income?
The money deployed for the collection of council tax includes the money that is paid for the collection of water and sewerage rates; it is all under the one heading, according to the Accounts Commission, so it is all part of the overall savings and loss.
Well, I must say that I find that answer contradictory. However, Mr Sheridan is entitled to disagree with me, which, I am pleased to note, he usually does.
First, I reject your figure for national insurance—it is nothing like 10 per cent. The marginal rate of tax of 20 per cent to which you referred would kick in at incomes above £90,000 per annum. That accounts for 2 per cent of the Scottish population. It is touching that you are so concerned about people in that income bracket, Fergus. However, those people would face a 60 per cent combined rate only on their income above £90,000. I am sure that you understand the concept of a marginal tax, which would not be generalised on all their income but would apply only on the portion above £90,000. The combined tax rate in Belgium, for example, is 59.3 per cent; in Denmark, it is 62.9 per cent; in Finland, it is 56.7 per cent; in Sweden, it is 56.5 per cent; and, in Norway, it is 55.3 per cent. All those countries have a figure of around 60 per cent and they have neither a depopulation problem nor an economic competitiveness problem.
Well, none of them, of course, pursues the policies that you advocate. However, we will leave that minor detail to one side.
There is no way of making provision for future behavioural patterns, as the committee has discussed in the context of fiscal flight. If we look to the evidence rather than to your suggestions, it tells us that there are many other factors that determine whether people try to avoid taxes. You seem to be hinting that, if the wealthiest members of the Scottish community were taxed a bit more, they would try to avoid paying their taxes. I find that regrettable and unpatriotic, but if you are aware of such behaviour by those individuals, perhaps you could ensure that the appropriate authorities are informed of their shenanigans, so that we can clamp down on them.
I am afraid that I disagree. If you check the NIC regulations, you will find that that is the level of the increase, not the level of the tax.
In the memorandum, we argue that it becomes uneconomic to pursue poll tax and council tax debts after a certain length of time. Today we heard from the Scottish Executive's adviser that some £400 million in poll tax is still outstanding. The poll tax was abolished some 12 years ago and we do not find it acceptable to continue to pursue 12-year-old, 10-year-old or eight-year-old debts. Most local authorities already have punitive penalties and efficient collection systems in place. We believe that they are collecting as much as they are going to.
So would there be no further tax write-off every year under your proposals? Would you rigorously enforce tax payments from everybody? Would there be no further write-offs based on any judgment by you that people would be unable to pay after the Scottish service tax had been introduced? At the end of year 1, you would enforce payment of the tax by every person from whom it was due. Is that right? Or would there be further write-offs at some future date? If so, would you try to work out beforehand whether those who can pay will pay? Or would you just write it off, as you propose to do with the existing debt?
The collection rate for income tax is between 98 per cent and 99 per cent of bills levied. The collection rate for council tax is between 88 per cent and 91 per cent of bills levied. We therefore cannot foresee any reason whatsoever to have debt write-off in the collection of service tax in future years. We expect that there will be a much larger tax take, both in gross terms and in percentage terms.
A couple of other members wanted to come in with supplementary questions, but I do not think that we have time, as we have several other items of business to get through. When the issue comes to the chamber, members will obviously be able to make their points then. They will also be able to make points as we debate our report on the bill. I thank Tommy Sheridan and Gordon Morgan for their participation.
Meeting suspended.
On resuming—
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