Council Tax
Good morning. The first item of business is a debate on motion S2M-2693, in the name of Alasdair Morgan, on council tax.
I congratulate the people who have made it in this morning for the earlier start.
When the council tax first came into force in April 1993, the majority of people breathed a sigh of relief that the manifest unfairness and inequities of the poll tax had been put to one side and hoped that they had got something better—something that was simpler to administer and not too inequitable. However, I believe that mature reflection on a lot more than 10 years' experience has led most people to believe that the council tax is neither simple nor equitable. Back then, the impact of the council tax was relatively small and so the lack of correlation between the level of the tax and the taxpayer's ability to pay it was not seen as a huge problem for most people.
However, all that has changed. It changed under the Conservatives and, my goodness, it has changed under the Labour Party and its coalition partner, the Liberal party. It has changed so much that the tax has gone up by 55 per cent since 1997, while inflation has gone up by just over 10 per cent. The sheer size of the tax has transformed what was for most people a tolerable unfairness in 1993 into a real and pressing problem. Poll results from earlier this week show that a large majority of people in Scotland want to move away from the current council tax to a tax based on income. No wonder: under the current system several relatively good wage earners might live in a modest property with a low council tax while at the opposite end of the scale others, particularly those on fixed incomes or pensioners, might live in larger houses, the value of which bears no relation to their present income and might never have borne any relation to that income, depending on the family history and that of the house.
I am pleased that the member can see me in the glare from my suit. [Laughter.] Does the member accept that the available statistics show that there is a correlation between levels of income and the band set and that in order to make his point he is extrapolating the extremes?
That is my point. Because the correlation is neither necessary nor obvious, the tax itself has become so complex in order to out some of the inequities that it is now becoming as bad as the poll tax was—about which the member and his Government had exactly the same problems.
The other selling point of the tax back in 1993 was that it was simple to administer, especially compared to the reliefs that were involved in getting over the inequities of the poll tax. However, the council tax is not cheap to administer. It requires a system of valuing properties, which would not be required if the tax did not exist. It requires a separate system of collecting the tax, which would not be required if the tax did not exist. It requires a complex set of reliefs to address its problems, which would not be required if the tax did not exist. As desperation sets in as an election looms the Chancellor introduces a temporary, one-off set of bribes, which would not be required if the tax did not exist. Finally, we face the prospect of a revaluation exercise, which has already taken place in Wales, which would not be required if the tax did not exist.
Let us talk about the revaluation exercise, which, despite the text of the Executive amendment, is being talked about in Government circles, along with a potential increase in the number of bands, as a way to solve the problem of the council tax, which even the Government admits exists. A revaluation and/or a rebanding would be of assistance only if there were a strong link between the value of one's property and one's ability to pay the tax. The hard fact is that, despite what Mr Monteith says, there is no necessary or sufficient connection between the income of people living in properties and the value of the properties.
In many cases revaluation might even exacerbate the unfairness. Given that the current value of a house has no necessary relation to a person's ability to pay the tax, it follows that changes in property values, which underlie the revaluation, can have absolutely nothing to do with a person's income, particularly where people have been living in a property for a considerable time.
The Welsh experience shows that the impact of revaluation is not negligible—which is the whole point of the exercise. Well over 25 per cent of properties move up one band and just under 5 per cent of properties move up two bands.
We face the prospect that people, particularly those on fixed incomes, who have lived in a house since before the council tax was invented but whose house happens to be in an area where house prices have risen, will find that not only has their council tax increased by the amount of the poundage increase—which I remind members is 55 per cent since 1997—but that they have moved into a higher council tax band as a result of property price increases from which they have gained no benefit whatever and indeed will gain no such benefit until they die.
Unless the Government is telling us that it believes that people have to sell their house and move to a cheaper one in order to pay the tax, it really has to come up with a fairer system of levying taxes for the provision of local services.
I presume that Mr Morgan accepts what is in our amendment, which is that there will be no revaluation—ministers have already decided that.
Yes, well, what is said before an election is often not the same as what happens after an election. It is amazing how all the themes in all elections throughout the United Kingdom tend to cross and are interchangeable. I might read the minister's lips, but I am prepared not to be surprised when something different happens in the final event.
It is time for parties to stand up for what they think is right. To the Liberal party members I say that I do not think there is anything in the Scottish National Party motion with which they should disagree. To the Labour Party members I say, look back at the party's long history in relation to the council tax. There have been innumerable inquiries into the rating system since well back in the 19th century, which is one reason why I am a bit cynical about the latest one. For the Labour Party members I select just one such review, which I remember studying in economics at university. I refer to the Sorn committee report—the report of the Scottish Valuation and Rating Committee of September 1954—which is well down the list of committees that have looked into the problem. The report states:
"In their evidence the Labour Party have stressed the inequalities involved in rating … property from the point of view of ability, and have suggested that … the burden of local taxation … should be raised by a form of local income tax."
I rest my case.
I move,
That the Parliament notes that the council tax has increased by 55% since 1997; further notes that the council tax is a regressive form of local taxation which penalises those on low incomes and pensioners and is overwhelmingly rejected by the people of Scotland and that the revaluation of the council tax in Wales has resulted in more than one-third of properties moving up by one band or more, and agrees that there should be no revaluation of properties in Scotland and that the unfair council tax should be abolished and replaced by a fair system of local taxation.
It is a great pleasure once again to take part in a debate on local government finance, and the council tax in particular, and to set out the Executive's position on the future of local taxation in Scotland. I appreciate the early start. At least Mr Morgan is dressed soberly, which perhaps cannot be said for Mr Monteith in his suit; however, I bow to his sartorial elegance once again.
After the 2003 election, this devolved Government made a commitment in the partnership agreement to set up an independent review of local government finance. We have delivered on that commitment. Local taxation is an important issue that affects us all. During our lives we will all at some time use the vital services that local government provides. We need to have the right system in place to provide the funds that local authorities need to carry out their tasks and responsibilities. It is no secret that there are different views on what that system should be; there are different views even within the coalition. That is what the independent review that we have established is now examining and we will need to wait to see what conclusions it reaches.
Does Mr Scott accept that the history of all the investigations into this subject should not fill the chamber with a great deal of hope that something may come out at the other end?
I am not quite as worried or cynical—perhaps it is unfair to use that word—as Mr Morgan, although I accept that these issues are complex. I cannot remember back as far as 1954, but I grant that we have considered the issues in detail in the past. That is not to say that we should not review where we are and examine the issues again.
Sir Peter Burt's review committee has made an excellent start to its work, and the recent consultation has received more than 300 responses. The extended deadline for responses is tomorrow, and I trust that all political parties have grabbed that important opportunity to contribute. The committee has been set a challenging remit. As Mr Morgan rightly said, it is not the first review of local government finance: a number of studies have been conducted both north and south of the border. The Layfield committee, which pursued arguably one of the most far-reaching inquiries, reported in 1976. In the event, however, it could not decide between a property-based tax and a local income tax. Perhaps that was the point that Alasdair Morgan was making earlier.
More recently, the House of Commons and the former Local Government Committee have concluded reviews of local government finance. The report of the former Local Government Committee, which was published in March 2002, included several recommendations covering council tax, non-domestic rates and the need to strike a balance between Scottish Executive funding and council tax funding of local services. Although it is clear that there are no easy answers, that should not prevent our seeking the best answer, which is what Sir Peter Burt's committee has been charged to do.
Members will know, from the review committee's recent consultation paper, that it has approached its remit in a thorough and comprehensive way. The committee has made it clear that its consideration will cover options for property-based local taxation, including the council tax, domestic rates and land value tax, and options for non-property local taxation, including a local income tax. If the Tories wish, they can re-submit Michael Howard's poll tax—they will find the spirit of openness very welcome. I trust that all members who have views on those or any other options will have responded to the committee, giving their reasons and evidence.
The Scottish Executive acknowledges and understands the concerns about the present council tax system, which reflect the concerns about the previous system. We all want a system of local taxation that is fair, reliable, predictable and stable. Those are the themes on which we will assess systems of local taxation. I will not speculate on what the review may conclude, but I guarantee that we will examine the review committee's recommendations carefully and act on them.
I move, as an amendment to motion S2M-2693, in the name of Alasdair Morgan, to leave out from the first "council tax" to end and insert:
"Scottish Executive has established the independent inquiry into local government finance consistent with the Partnership Agreement of May 2003; notes that, because of the ongoing inquiry, there are no plans for a council tax revaluation in Scotland; notes that the Labour Party has submitted clear and detailed proposals to support changes to the council tax and that the Liberal Democrats have submitted clear and detailed proposals to support a local income tax, and therefore encourages all parties and others to make submissions to the inquiry."
Some members may think that I have not been home for three days, as it was three days ago that the sun came out and I donned this bright suit. As a Hibs-supporting Tory, I hope that the sun may come out following Hibs' victory last night. However, I must press on.
Given the way in which council tax is often portrayed in the chamber, one could be forgiven for thinking that it is the only tax that pays for local council services and that, were it to be abolished, the complaints about high levels of taxation and its unfairness would vanish. Once those two big lies are confronted and exposed, we see that it is not the type, but the level of taxation that is the problem. The level of taxation for local services is too high, and the proposals for a local income tax will not cut the total tax that is taken from the public; a local income tax will simply concentrate a greater share of the burden on a smaller number of people who will have to pay substantially more. What is needed is a cut in taxes for everyone; so let us confront those two big lies.
Will the member give way on that point?
I would like to make some progress. I shall take interventions later.
When the council tax was introduced, it was accompanied by an increase in VAT of 2.5 per cent so that the level of local taxation could be reduced. Indeed, we can see from any objective analysis that council tax contributes only between 20 and 25 per cent of local council spending, depending on which measurement is used. The rest of a council's income comes from direct charges, business rates and a very large central Government grant that is paid for by VAT, income tax and other taxes and duties that feed into the Scottish block grant. Nobody can deny that those who earn more contribute more through a combination of their direct income tax and their indirect consumption of goods and services for which they pay further taxes. Furthermore, those who are on low incomes are not only more likely to live in properties that are in a lower band—as the evidence shows—meaning that they pay less council tax; they are also entitled to council tax benefit. That is important.
Does Mr Monteith accept the fact that around 40 per cent of pensioners who are eligible for council tax benefit do not claim it and that an awful lot of people who are living on low incomes in property hotspots such as Edinburgh are penalised twice because of the system?
I have two things to say to Margaret Smith. First, if we need a debate about where the line should be drawn for council tax benefit so that more people might realise that they are eligible for it and might benefit from it, I am all for having that debate; I have an open mind as to whether that line should be redrawn. Secondly, even if the member were not to agree with that, I hope that she would agree that the policy of giving a 50 per cent discount to pensioner households would alleviate the problem that she suggests exists and which I believe exists. The Conservatives have come up with the solution that she should support.
Will Mr Monteith give way?
No, I must make some progress before I take more interventions.
There is no escaping the fact that council tax covers only a fraction of local council services, and it is interesting to note that the proposals for local income tax are based on covering that same fraction. They involve the same amount of money and do not offer an underlying cut in local taxes. What is being offered is a different tax that would see hard-working people, who already contribute heavily, paying even more.
The proposals from the Liberal Democrats and the SNP are flawed. The Liberal Democrats have not, for instance, taken account of the millions of pounds in council tax benefit that goes from the Treasury towards council spending. That amount would have to be picked up by the local income tax payer. The SNP at least acknowledges that the gap in funding exists, but it says that we should still receive that council tax benefit. That is self-delusion. We could not expect to get a benefit that is meant for those who are on low incomes if we had a local income tax that was designed to impact less on those who are on low incomes. The Liberal Democrats' solution is even worse, as their tax is based on a transfer of funds that would come from their 50 per cent top-rate income tax on those who earn more than £100,000 a year.
Will Mr Monteith give way?
I think that I am running out of time.
You are in your last minute, Mr Monteith.
It has been shown that there is a deep, black hole in the Liberal Democrats' estimate of the tax take from that 50 per cent tax on those who earn more than £100,000 a year. It would not deliver the subvention that would be required.
It is important that we cut taxes for everyone by looking at the job and the responsibilities of local authorities and deciding what amounts should be raised by local taxation. The proposals that the Conservatives have made for funding schools directly—not cutting education spending—could bring a council tax cut for everyone of, on average, 35 per cent. They would address the concerns that are being raised about council tax and return it to a level at which there would be no pain for people in paying it.
I move, as an amendment to motion S2M-2693, in the name of Alasdair Morgan, to leave out from "; further notes" to end and insert:
"and that it is this large rise, and not the tax itself, that has made the cost of local council services a greater political priority and a punishing burden for so many Scottish households; believes that to offer a sustainable and fair solution, therefore, a complete review is required of local authority responsibilities and direct payment of some of these by the Scottish Executive so that council tax may be substantially cut; notes that only the Conservatives are offering such a seismic shift by transferring the full cost of schools to the Executive's Education Department which could result in a 35%, or £384, reduction in Band D council tax for every household, while proposals for a local income tax would maintain the existing total tax take and would only change who pays what amount, and believes that Labour's proposal for the introduction of a new top band will place a disproportionate burden on a small minority, while a new lower band will be of major benefit to the Treasury through reduced council tax benefit payments."
I apologise to you, Presiding Officer, and to the opening speakers of the other parties for missing the opening speeches. I made the error of forgetting that we have moved to a 9.15 start.
In choosing to debate this issue today, the SNP shows that it is a desperate party that knows that its election campaign is in meltdown. It is desperately trying to focus on this issue because it believes that that may win it votes; however, it is mistaken in believing that. It is inept as well as desperate. [Interruption.] We will see, in the course of the election campaign, whether I am proved to be right.
I will start by talking about the problems of a local income tax. Local income tax would be problematic for a number of reasons. First, it would be far more complex and difficult to collect than the current local property-based taxation. It would also introduce large variances.
I would be grateful if Mr Muldoon would spell out what makes a local income tax more difficult to collect than the national income tax that is collected every single month of the year from everyone's pay packet.
Quite simply, there is only one rate for national income tax. Local income tax would mean 32 different rates. Apart from that, it would be easier to evade because it would be more difficult to track down the local authority area in which someone was living.
Will the member give way?
No, I have taken an intervention from an SNP member already; I wish to make some progress.
Local income tax would also be less stable than a property-based tax. For example, a couple of years ago West Lothian was faced with the electronics industry crisis and thousands of people lost their jobs overnight. What would have been the impact on local services in West Lothian of the reduction in income from a local income tax at that time? It would have been devastating for that local authority, unless the Government had come in with large sums of money to bail it out.
Another problem is that a local income tax puts the burden on to those people who pay income tax and declare all their income. Those who evade the current income tax system would end up paying no local taxation either.
Will the member give way on that point?
No; I have only four minutes.
The correct way forward is a review of the council tax system. It has its problems, but it can be made fairer. That is why Labour is arguing that we should increase the fairness of the council tax by introducing additional bands at the bottom and top of the scale. The Chancellor of the Exchequer also acknowledged the impact of the council tax on pensioners with the recent announcement of the £200 payment to assist with pensioners' council tax. We should be trying to make the council tax fairer.
Local income tax would also introduce deviations in the local economies throughout Scotland. Different parts of Scotland have different average levels of income.
Will Bristow Muldoon say whether he voted for the Parliament to have the power to vary income tax? How does he square that with denying local councils the opportunity to vary tax through the income tax system?
Of course I did; I voted yes, yes in the referendum, and it is absolutely right that the Parliament should have the power to vary income tax. This is a Parliament.
Giving local councils the opportunity to vary income tax and having wide variations in local income tax would produce a lot of problems for local economies. For example, if two local authorities were to have significantly different levels of local income tax, the problem would be not just fiscal flight from Scotland to England as a result of higher income tax, but fiscal flight from one local authority area to its neighbours, denuding many areas of the middle-class professionals on which they rely to provide local services and the stimulus to the local economy.
The local income tax would hit working families the hardest. It would increase tax for all Scots who pay tax by up to 5 per cent. Thankfully, the SNP cannot win this election and so cannot introduce the tax now, but I look forward to them campaigning on it in 2007.
Council tax has risen by a massive 55 per cent since the Labour Party came to power in 1997. That was caused by the deliberate transfer of taxation from national to local government, the creation of new burdens for local authorities and the partial funding of new initiatives, particularly by the Scottish Executive. Additionally, for many areas, as Bristow Muldoon so ably displayed, there were added problems with incompetent Labour councils. That has resulted in an average band D council tax in Scotland of almost £1,100 per year, or £110 per month on the 10-month instalment plan. That excludes charges for water and sewerage.
As council tax bills have rocketed, the Achilles heel of the tax has become ever more evident; it takes little account of the ability to pay. As a result, the poorest sections of society—pensioners, low-paid workers, the working poor and those on fixed incomes—are now spending an increasing proportion of their income on their council tax bills.
As I said, council tax takes very little account of the ability to pay, and that brings me nicely to means testing and the rebate system. Twice a year, pensioners, those on benefits, and the low paid are required to complete council tax rebate forms. The system forces pensioners in their 60s, 70s and 80s to fill in multiple page forms, to provide details such as copies of their bank accounts or bank statements, to send proof of their small occupational pensions and to answer inquiries into every aspect of their financial affairs.
Will the member take an intervention?
No. The member would not take one from me.
I have not spoken yet.
The member's colleague would not take an intervention from me and we have heard enough from Mr McMahon already.
In short, the system treats pensioners as if they were criminals. Many of our senior citizens find the system intrusive and degrading and, after a lifetime of work, our elderly citizens should not be means tested for a miserable rebate.
Does the member agree with his colleague, Mr MacAskill, who said that the SNP should consider targeting benefits in the way that you are now describing?
I am saying that there should be a local income tax that is based on the ability to pay, and at one time the Labour Party would have supported us in that aim.
Not all our pensioners receive full or partial council tax rebates. A small occupational pension is more than enough to rule someone out of receiving a rebate even if it takes them only a few pounds over. Indeed, it is not even necessary to have an occupational pension to be ruled out of receiving a rebate. Many pensioners who receive graduated pensions, often for working all their lives, find themselves paying full council tax.
Will the member take an intervention?
I am sorry but I need to make some progress.
That is one of the many reasons why the SNP supports the abolition of the council tax and says that it should be replaced by a local income tax that is based on the ability to pay.
Our replacement tax system means that if someone does not pay basic rate or higher rate income tax—and that excludes those who pay tax at the lower rate of 10 per cent—they will not pay local income tax. However, if they pay basic or higher rate income tax, they will pay local income tax at approximately 4.5p in the pound of taxable income, and there will be higher allowances for pensioners. In all cases, of course, there would be no council tax because it would be abolished by the introduction of local income tax.
Because local income tax is income based and deducted at source, means testing would be abolished at a stroke along with the costs of a separate collection system, administration of the rebate system and much of the inequality of a property-based system.
I am right out of time, but I would have loved to deal with the fantasy politics of the Tories or the election bribe of the Labour Party—described by Help the Aged Scotland as a "grotty little bribe"—but time does not allow.
The council tax is undoubtedly an unfair tax. That is why Liberal Democrats and other parties have been campaigning against it across the country.
Partly because of the gearing effect, council tax rises have consistently outstripped inflation and placed a growing and unacceptable burden on council tax payers. That is why we secured an independent review of local government finance as part of the partnership agreement. We must make sure that any system is fair and efficient, that it keeps decision-making powers and accountability with local councils and that it assists those who are in greatest need. We support the Executive's amendment because it is a simple statement of that fact. Meanwhile, the SNP motion does not even mention a local income tax. The clear fact is that Liberal Democrats secured that independent review, and we have submitted our consistent view that a local income tax that is based on people's ability to pay represents a fairer system than that which we have at present.
In 2003, the Institute of Fiscal Studies said that 70 per cent of people would benefit from or be unaffected by the introduction of a local income tax. Meanwhile, the council tax penalises those who can least afford to pay. Across the United Kingdom, the poorest 10 per cent pay out more than four times more of their income in council tax than the richest 10 per cent. That cannot be right.
A local income tax would be fairer to pensioners and to people on fixed and low incomes. To penalise pensioners living in the family home in which they have lived for many years simply because their home has increased in value is unfair and bears no relation to their income. In 2002-03, the council tax amounted to 3.67 per cent of gross annual earnings, but it represented a whopping 20.5 per cent of the state pension. People who currently do not pay income tax—which includes 50 per cent of pensioners—would not be liable for local income tax either. Our figures suggest that the average single pensioner would pay about £186 a year.
It cannot be right to carry on with the notion that a property tax, based on the price of someone's home, is a fair tax, when people on average earnings, living in average family homes in areas such as my constituency of Edinburgh West, have seen the value of their homes rocket since 1991 in a way that bears little resemblance to inflation and often little relation to salary increases. That is why we disagree with Labour's position. We do not believe that the council tax can or should be reformed—we believe that it should be axed. We do not believe that revaluation or adding extra bands would improve fairness. In constituencies across Scotland, just as in Wales, that would mean massive increases in council tax bills. In Wales, more than one third of homes have moved up a band. Crucially, some of the worst-hit wards, in which as many as 90 per cent of homes moved upwards, were among the poorest.
I welcome the minister's indication that the Scottish Executive has no plans for revaluation. However, I remain concerned that Labour's submission to the review insists on having extra bands, which would penalise people across Scotland. It is estimated that in places such as Edinburgh and Aberdeen every household would move up a tax band, adding hundreds of pounds—in some cases, more than £1,000—to family and pensioner bills. Those rises would not be limited to high earners. Research carried out by the Local Government Committee in 2002 showed that low-income households in places such as Dundee, East Dunbartonshire, the Western Isles and the Borders would be likely to move up a band and to be subject to increases of up to 28 per cent.
Does the member agree that the introduction of any new bands would require revaluation, because the value at which those bands were set would have to be calculated? Any new bands would have to reflect the change in property prices since 1991, which would have an impact on all the other bands.
For once, I cannot argue with Mr Monteith's logic. If we were to take the route proposed by Labour, revaluation would be required.
The council tax is also bureaucratic, expensive to collect and much easier to evade than income tax. We estimate that it costs four times as much to collect £1 in council tax as it costs to collect £1 in income tax. As I said earlier, 40 per cent of eligible Scottish pensioners do not claim the council tax benefit to which they are entitled, allowing the Treasury to keep billions in unclaimed benefit every year.
The 50 per cent reduction for pensioners that Mr Monteith mentioned covers only England. We are campaigning across the United Kingdom to axe the tax and to replace it with a fairer local income tax. Our figures take into account the issue of benefits, which Mr Monteith raised, and the extra cost of collecting water charges. That is why we and the SNP have slightly different figures.
By supporting a fair local tax, set by fairly elected local councillors, we are supporting Scottish councils—unlike other parties in the chamber, which do not trust local authorities to respond to local needs. The SSP's Scottish service tax would take decision making away from local councillors and give it to central Government. The Local Government Committee said that it saw no merit in that suggestion. Bizarrely, the Tories would yet again slash public services. They would asset strip local government of key functions, such as education, and centralise them with people such as Tavish Scott, instead of locally elected councillors.
We all agree that aspects of the present system are unfair. That is why it is right that Peter Burt and his colleagues should consider all the options and bring their findings to the chamber, so that we can act on them as quickly as possible. I hope that they will come down in favour of a local income tax, as we do strongly.
I start with a profuse apology to the chamber, because I, too, was not here for the start of the debate. I admit that I had totally, utterly and completely forgotten that the start time for the debate had been brought forward.
In that conciliatory spirit, I start by congratulating the SNP on bringing before us today a policy debate. The best politics is about ideas, and abolishing the council tax is undoubtedly a big idea, although it is not necessarily a good idea. The SNP's parliamentary group should be congratulated on bringing a policy debate to the chamber, because its general election campaign seems to be about anything but policy. On day 1, it was about swords and suits of armour. On the day before yesterday, it was about a fistful of fivers. However, today we have a policy.
Another idea is that, fundamentally, tax should be progressive and based on the citizen's ability to pay it. Does the member agree with that idea? If so, in the minutes that remain to her will she outline the progressive nature of the council tax?
I will certainly come to that matter.
I want to make the point that the policy of abolishing the council tax is a touch about telling people what they want to hear. The truth is that no one likes paying taxes. The history of Scottish politics is littered with sagas such as the poll tax, the tartan tax and the Tories' pillorying of Labour's roof tax. Some members are never happier than when they are bleating about the rates—indeed, I have done it myself. Local government taxation is an easy hit for politicians who are interested in hot headlines. However, the punters are not daft and know that services need to be paid for.
Lest I be misunderstood, I make it clear that I have no brief for every aspect of the council tax. However, the problem with the SNP's motion—and some other people's approach to the issue—is that it proposes the abolition not just of the council tax, but of all taxation on domestic property. Why would that be the right thing, as opposed to simply the expedient thing, to do?
We often hear from the SNP about small countries. Interestingly, Austria, Belgium, Denmark, Finland, Greece, Ireland, Italy, the Netherlands, Sweden and Switzerland all have some form of property taxation. So why is it right to do away with that completely?
Sadly, when it comes to easy promises on money matters, the SNP has some form. Last autumn I, along with many others, got serious about how we might reform the financing of the Parliament. I challenged the SNP to name just one country that had chosen the form of fiscal autonomy that it advocates as a way of financing the Parliament. The silence has been deafening. We have had 250 years in which to perfect federalism, but the SNP was unable to find one nation that had got it right. When the issue got too hot to handle, it resorted to the politics of oil—the debate was all about how we could save without first covering the overdraft.
In 20 years of opposition, we in Labour learned that people look for candour from politicians when it comes to making tough choices. That is why Peter Burt, a distinguished banking chief executive, has agreed to consider the case for reform, but not the case for abolishing all property taxation. I recall that just five years ago the SNP believed in asking the experts. Now that seems to have gone out of fashion. The big issue for the SNP is for it to stand up and explain from first principles why all other small countries in the Organisation for Economic Co-operation and Development are wrong when they say that a progressive taxation system should include some taxation of domestic property. I fear that, just as we cannot name one country that has opted for the SNP's form of fiscal autonomy, the silence in the rest of the debate will be deafening.
I agree that our present council tax system is not right. However, in my view a system of local income tax would be much worse. The answer is not wholesale abolition and replacement. As Wendy Alexander pointed out, we need a mixed system of taxation that covers land, property and income. The current system should be reformed.
I am concerned that the Liberals and the SNP appear to define the ability to pay not in terms of wealth but solely in terms of earned income. Any system of taxation contains distortions, which is why we need a mixed system of taxation. Stated clearly, the problem that the nationalists and the Liberal Democrats want to address is not ability to pay, but liquidity, and not the absence of wealth, but the situation in which wealth is locked up in land and property.
I am very interested in the member's focus on unearned income and assets. Given that, does he support the Labour Government's very first tax change which, so far, has taken £42 billion out of pension funds and has been and will be a major contributor to present and future pensioner poverty?
We are not discussing pensions. I believe in a universal citizen's income, which would include a universal citizen's pension. Let me be clear: we are talking about wealth. Over the past few years, the average British house, which is an unyielding and passive bit of real estate, has made as much money for its owner—
Will the member give way?
I am sorry—I have to continue.
The owner of the average British house has made as much money from that property as the average Scottish worker has made in earned income. People's wealth is increasing because of property. For example, in 2003-04, the average house made £20,000 for its owner.
Perhaps the member will address my point about the progressiveness of council tax that Wendy Alexander failed to cover. Is the Green party seriously saying to pensioners in my constituency that, because of its support for progressiveness in the council tax, they have to sell their houses and move?
Every system contains anomalies. We need to tax wealth, because the problem is liquidity: pensioners are asset rich and cash poor, while other people are income rich and asset poor. That is why a system that is based solely on property tax or solely on income tax creates massive distortions. We need a mixed system of taxation that balances such elements.
Let us be clear about where those values come from. There has been a huge increase in the value of property, and a certain element of property value arises from the community's investment in roads, fire services and hospitals. It is right that the community should collect back some of that increase in value in the form of a property tax. That is why we need a mixed system of taxation. Bristow Muldoon was absolutely right to point out that a local income tax would create problems of evasion and avoidance. At the moment, some people in Scotland evade paying any income tax. However, although they can move their incomes offshore, they cannot do the same with their land. That is why, in any system of taxation, we must consider people's ability to pay, based on their wealth. Instead of putting all our taxation eggs in the income tax basket, we need a mixed system of taxation. Council tax should be reformed, not done away with.
It is very rare for me to agree with Jeremy Purvis, but today is a wonderful exception. Undoubtedly, the Conservatives, the Labour Party and—as we have just heard—the Greens have a great desire to tax the various forms of capital such as that accrued in a pension fund or in the artificial inflation of property values. However, people who own large or expensive houses and have small incomes have to live somewhere. If we are saying that we have to dissipate that capital to finance a revenue consequence, that is daft economics.
Will the member take an intervention?
The member should let me develop the point.
It is the same daft economics that Mrs Thatcher applied to the revenues from the dissipation of capital that came from privatisation. That approach has been continued by the present chancellor with regard to the capital that comes from North sea oil, which is being blown as if it were current revenue. We are being asked to continue the same discredited method of taxation on capital, which is a great disincentive to investment and savings for the future. I am surprised that the Conservatives, who tried to encourage people to think about and invest in the future—at least I thought that they did—want to tax that investment, whether it is in the form of a house or anything else. Not only will there be that tax on capital but there will also be capital gains tax. Indeed, if the Conservatives do not get the money when one is alive, they get it when one is dead, through inheritance tax.
We have had some debate about whether there should be a revaluation. Brian Monteith successfully blew a hole in the amendment in the name of Mr McCabe, in that one cannot have Labour's proposals without a revaluation.
Will the member take an intervention?
No, thank you.
Even the current arrangements for valuation are nonsense. In my constituency, properties built by the council in the 1940s and 1950s, in estates where hardly any of the houses have been sold, are given the same valuation as houses in Manor and Logie, or in Ruthrieston on the south side of the city—which is regarded these days almost as a leafy suburb—where many houses have been sold. Those properties all have the same capital value. The system is nonsense and does not reflect the true capital value of the properties—it is impossible for the system to do so. The system is expensive to administer and does not in any way reflect the ability of the people who live in those houses to pay.
Will the member take an intervention?
No, thank you.
We need much greater correlation between ability to pay and charges. Successive Governments have shifted the various charges. As Mr Monteith rightly pointed out, there was an increase of 2.5 per cent in VAT, so that we would swallow the council tax rather than go back to the discredited rates system. However, since then both Conservative and Labour-Liberal Democrat Administrations have shifted taxation from central taxes to local taxes. That is why, when inflation has gone up by 10 per cent over the past few years, we have had a 55 per cent increase in council tax. We are back at the same point. Indeed, we have also had an introduction of successive—[Interruption.] Am I running out of time, Presiding Officer?
Yes—you have almost run out of time.
I commend a system of local taxation that reflects ability to pay: that system is income tax, whether or not the words are in the motion.
I am pleased to hear the problems of senior citizens being so thoroughly addressed by this Assembly.
All forms of taxation are highly unpopular. However, the main criteria for all types of taxation, if they are to be generally accepted, are: the ability to pay; a fair rate across the board; and no loopholes for evasion.
We hear a lot of talk about fairness. There are only about 2 million homes in Scotland for a population of 5 million. Forty per cent of the population pay council tax and 60 per cent of the population do not need to pay council tax because they do not own their own home. Why should people who do not own their own home enjoy facilities that are paid for by pensioners who happen to own their own home?
On the collection of income tax and council tax, Andy Kerr last year stated that it cost 2.8 per cent of council tax to collect it. For income tax, the figure is much lower, at 1.41 per cent. However, because 7 per cent of council tax is never collected, the system is almost 10 per cent inefficient. In other words, if it costs 2.8 per cent to collect the tax and 7 per cent does not get collected at all, 9.8 per cent of all council tax never reaches the council. Some efficient councils in central Scotland and elsewhere are still struggling to get some of yon poll tax from citizens in their areas. They have not even collected the poll tax yet, and we all know how long ago that was.
Does Mr Swinburne agree that a huge amount of income tax is avoided and evaded? It is much more difficult to avoid paying tax on a property, which one cannot move out of a local authority area or out of Scotland, than it is to avoid paying tax on an income, which can be moved out of Scotland. A large amount of income tax that should be collected is not collected.
As I have said before, there is a growth industry in this country among the accountants, lawyers and so forth who enable the very rich to avoid paying their fair share of income tax. If the Government and others would address that problem, the economy of the country would be much richer.
I do not know where members' views are leading. Should we bleed a pensioner who is living on a pittance—someone who has saved hard and bought their own house? When a pensioner is terminally ill, people come along rubbing their hands and the pensioner has to sell their house to pay for residential care. What kind of society are we living in?
Fairness for all—that is what we are looking for. We must have fairness for people who are on fixed incomes or low pensions, and there are 1.2 million pensioners in that category in Scotland. Many of them are unable to pay the regressive council tax. I do not care whether no other country does something similar: it is time that we got rid of a property-related tax and got some reality into the whole set-up.
Yesterday in the chamber, I highlighted a poll that showed that 79 per cent of Scots support greater wealth redistribution. If this Parliament could take one step before all others that would significantly shift wealth from the well-off to those who need it most, it would be to scrap the council tax and replace it with a tax based on income. That would immediately and effectively put hundreds of pounds into the pockets of pensioners and the poor, and it would lift a sizeable burden from their shoulders.
As every member knows, the council tax is hugely unpopular. It is hated out there in the country. Why? Because it is unfair. It is based not on a person's income but on a notional value of their house.
People rightly regard the council tax as the son of the poll tax. It bears no relation to income. The poor pay a greater proportion of their incomes than do the well-off. A low-paid worker on £5 an hour, living in a modest semi-detached house, has to work for six weeks to pay off her council tax demand. However, someone on, say, £100,000 a year—such as a Government minister—works for just five days to pay off their council tax obligations. The bottom 10 per cent of earners pay 12 per cent of their income on council tax; the top 10 per cent pay just 2 per cent. Such disparities are widespread and widely known about.
The council tax system means that the rich are substantially better off than they were before, and the poor much worse off. Under the old rates system, the richest households had to pay 14 times more than the poorest households; now they pay only three times more.
Presiding Officer, you might have seen a film called "Primary Colors" in which John Travolta plays a character—Mr Clinton—who says, "Any idiot can burn down a barn." Instead of just criticising what is wrong with the present system, the Scottish Socialist Party has come forward with a constructive solution. The Scottish service tax is an alternative to the council tax and has been developed by respected academics—the experts whom Wendy Alexander holds in high regard. They suggest that a local income tax should be set uniformly across Scotland. Under the Scottish service tax proposals, 16 per cent of households in Scotland would pay more, but 77 per cent of households would be better off. Nationally, where people live would make no difference to what they would pay. The tax would be easier and cheaper to administer and it would avoid the fiscal flight that others have mentioned, and the possibility of 32 rebates.
I congratulate the SNP on holding this debate. The SNP is on record as saying that we must scrap the hated council tax at the earliest opportunity. That opportunity will come in September, when Tommy Sheridan's bill—to abolish the council tax and replace it with the Scottish service tax—will go before the Local Government and Transport Committee. Will the SNP member who winds up the debate tell us whether the party will back that bill in September?
An accusation often heard in the chamber against the SNP, and rightly so, is that the party too regularly uses its allotted time to discuss reserved matters and does not—as Wendy Alexander pointed out—debate policy. I therefore find it rather bizarre that, during a general election period when we are all talking about Westminster, the SNP now chooses to debate a devolved matter. However, we should not be surprised that that type of muddled logic should emanate from the SNP benches, although it has been worth having the debate just to hear Brian Adam promise to abolish inheritance tax.
In their rush to weigh in on a populist subject—and populism really is the SNP's only guiding principle—have SNP members, like the minister, taken the time to read the report on local government finance that the Local Government Committee produced in the first session of Parliament? If they have, they might be aware that numerous local councils, including SNP-run Angus Council, recommended retaining the council tax, as did many professional bodies, such as the Institute of Revenues Rating and Valuation and the Chartered Institute of Public Finance and Accountancy—people who, it might be said, actually know something about the subject.
Those people were right to make the recommendations that they made. The council tax retains crucial elements that the SNP has failed to discuss, including accountability between councils and the electorate and the council tax benefit scheme that protects people on low incomes who find it difficult to make payments. The Labour Party remains dedicated to providing financial assistance to those who find the council tax difficult to pay, whereas the SNP just wants to score an easy hit and ignore the difficult decisions that accompany tax-raising powers. Taking its usual line of least resistance, the SNP has decided that a locally set income tax would somehow benefit the people of Scotland. In an effort to court the pensioner vote, the SNP ignores the fact that its proposed income tax would hit working families the hardest. According to its own figures, it would increase income tax by 4.3p in the pound. That does not make the system fairer; it just moves the unfairness around.
Having reintroduced—as Bristow Muldoon rightly pointed out—the Andrew Wilson school of back-of-the-envelope economics, the SNP forgets to tell us how it proposes to institute its new taxation system. Would councils collect the local income tax or would the Inland Revenue have to have 32 different collection rates? How does the SNP address the fact that an income tax would result in higher increases in business tax? How does it address the fact that, although the collection rates under the present council tax system are around 91 per cent, they were only around 67 per cent under the poll tax?
Simply lessening the number of people from whom a tax is collected does not in any way enhance local accountability. That accountability, when setting the tax rate, is absolutely precious.
Does the member accept that a local income tax will tax more people and increase accountability? Does he also accept that recovery rates exceed 91 per cent in the income tax system?
Stewart Stevenson fails to address a point that even the Green party has made. If we simply change to a local income tax, we take a whole lot of people who currently pay council tax out of the system, at both ends. That is not an enhancement of the system. If Stewart Stevenson fails to see that, I do not see how he could introduce an income tax system locally that would be fair in any way.
The SNP has yet again gone for a populist debate, rather than engaging properly in economic arguments. Its members may like to refer to 50-year-old, outdated reports, but they seem to be unaware of the existence of the local government finance review committee, which is currently reviewing different options for local taxation and the reform of the council tax and is considering the pros and cons of any changes to the taxation system. SNP members clearly believe that they do not need to see the findings of that wide-ranging, extensive and independent review correctly to evaluate local taxation. They already have their minds made up.
It is true that the council tax is not popular, but we in the Labour Party understand that there is no such thing as a popular tax. However, we acknowledge the importance of local government and local accountability, which is why we have to retain the link between people's property and the local government area. To drive people out into surrounding areas would punish cities such as Dundee and Glasgow and would just move unfairness around. That is not the basis on which to conduct a debate on local government finance.
I am a wee bit puzzled as to what the SNP was trying to achieve today; indeed, most members seem to be somewhat at a loss. When Alasdair Morgan started off, he said that taxation was not simple or equitable, but he did not say anything about high taxation being the worst thing for our economy and for the people who live in this country. There was no mention of high taxation, so I presume that he favours it and that his proposals are simply about tinkering with the system under which he would like to collect it.
Assuming that tax has to be raised, we must tax either people who cannot afford it or people who can afford it. Which is Mr Davidson's choice?
We have to have a fair system, as we do currently. The system is fair and there are no problems with it.
I ask SNP members a question. If they had the ability to move to a local income tax, where would the tax be set? Many people's wages are paid from an office in England, or even in Norway, as is the case for some of my constituents who work in the oil industry. How is the connection to be made locally? Michael McMahon was absolutely right when he talked about local accountability. That is the first thing that I thought of when the SNP started to talk about local income tax. Where is the accountability of the local councillors? That important issue is certainly not being dealt with.
Bristow Muldoon mentioned the interesting concept of fiscal flight and talked about the black economy. When I first raised that issue, I got some strange remarks from Labour members, but the problem exists. What about the uncollected tax that is already out there? In Scotland, we are collecting only 91.7 per cent of the council tax, whereas the collection level in England is 96.4 per cent. An efficiency gain would help to stabilise the council tax. Not long ago, Jack McConnell and Andy Kerr said that there would be no increases over 2.5 per cent, but what have we seen? We all know that the issue for councils is that they face new burdens for which they do not get funded.
The simplest solution is to go back to a statement that I made some years ago and that has been made again by my Conservative colleagues. We have said that, before we look at how we fund local government, we have to decide what it should be responsible for and where the accountability should lie. One of the reasons why we have suggested removing funding of education from councils back to the centre is that that would reduce the need to raise council tax and would give more autonomy to local schools. People simply do not understand that.
The debate has ranged all over the place, but the long and the short of it is that we need a mix of taxation. We need a mix of direct taxation, which, after all, along with all the taxes that the Government collects in Westminster, funds the greatest part of local government. However, there is an accountability factor with having a property-based tax. We need a mix. Indeed, I agreed with the Green members today—it is not often that that happens—when they talked about that mixed bag of taxation. We have to ensure that, within that mixed bag, we look fairly at pensioners and at people's ability to pay. We must ensure that those who should pay do pay and that those who need help get it.
Quite frankly, I have not heard any of that from the SNP members, who appear to be quite happy to have their party run from Westminster by Alex Salmond and to use Westminster's Treasury to do all their collection work for them. I find that amazing from a party that is supposed to be full of bright new ideas, but perhaps today's debate is part of the SNP's general election campaign. Perhaps the SNP wants to remove all taxation powers down to Westminster.
If we can agree on anything in this morning's debate, perhaps it is that the art of taxation consists in so plucking the goose as to obtain the largest number of feathers with the smallest amount of hissing. So said Jean-Baptiste Colbert, the finance minister to Louis XIV, some years ago, I guess—possibly even earlier than 1954. It is a serious observation that no system is perfect. As Wendy Alexander and a number of other members have pointed out this morning, there is no perfect system of national or local taxation. Different groups will have observations as to the effectiveness, efficiency or fairness of all systems of taxation. The Executive has initiated the review so as to provide an opportunity for those different aspects to be independently assessed and properly scrutinised against a number of important and balanced criteria.
Let me respond to the points that were made this morning. Brian Monteith pointed out that the council tax was introduced by the Conservatives. He also mentioned the simultaneous increase in VAT. If my memory serves me right, the increase was on VAT on fuel, which hit Scottish pensioners, families and businesses pretty hard. We certainly recall the Conservative context of VAT increases.
If Mr Monteith wants to confirm that, I am happy to let him intervene.
Clearly, the minister seeks to move into an area completely separate to the one that I was talking about. I was talking about an increase in VAT of 2.5 per cent on all the VAT-able areas. Does he agree that we then actually reduced VAT on heating and fuel?
Increased, reduced, increased, reduced—yes, we remember VAT during the Conservative years. The real point about the Conservatives' position is that, because of the James review, which is a product of their current thinking—although not in Scotland, because they do not talk about the James review in Scotland—
Yes, we do.
The Conservatives talk about the review depending on which question time it is. They are advocating increased spending but lower taxes—one of the more extraordinary positions being taken at this time.
Bristow Muldoon, Wendy Alexander and Michael McMahon argued fairly from their perspective for a property-based tax. Michael McMahon rightly pointed out that the SNP is debating a devolved issue in this chamber; that is a principle that we would all accept. He was also right to point out that Sir Peter Burt's review is open in assessing the different systems; it does not have a presupposed remit to work from and will take a clean-sheet approach. That is an important principle in carrying out the review.
It is also important to point out for the sake of accuracy that, since 2000-01, when this Parliament authorised and approved the annual budget and therefore the allocation to local government, council tax increases set by local authorities have increased by 28.9 per cent, including the current year's increase. I state that for the record as a fact. On the same theme, I point out to Bruce McFee that the Scottish Executive's investment in Scotland's local councils has increased significantly since devolution, rising from 47 per cent to 55 per cent by 2007. Funding for core local authority services will increase by 5.5 per cent in the current financial year.
Margaret Smith pointed out from a Liberal Democrat perspective, first, that the SNP motion does not mention local income tax—the SNP seems to be making overtures to the Scottish Socialist Party by talking more generally of a fairer system of taxation—and, secondly, that there are advantages in a system that is based on ability to pay. I reiterate the point that I made in response to Alasdair Morgan: because of the review, ministers have decided that there will be no revaluation. All that I can say about Mr Ballard's contribution is that my colleagues greatly appreciated his candour. As for Colin Fox's speech, of course the SSP has changed its mind and introduced a Trojan horse bill so that it can get rid of the council tax and then sit around in a nice circle deciding what will replace it. However, the party's real intentions were made clear when it revised Mr Sheridan's proposed bill last autumn: the SSP wants a national tax and is no friend of local income tax. I am surprised that the SNP motion lines up with that position.
I have no doubt that the debate will continue. The issue is important, even fundamental. We look forward to the review's findings.
Not for the first time, the Scottish National Party has brought to the Parliament an issue of enormous importance and relevance to the people of Scotland and is leading the debate. I was struck by the responses to a recent TNS system 3 survey, which asked:
"Would you support or oppose a change from the Council Tax to this proposed new system of a local income tax?"
In response, 70 per cent of Scots said that they would support such a change and 15 per cent said that they would oppose it. I must tell Labour members that 70 per cent of their supporters were in favour of a local income tax and 18 per cent were against it. Mr Monteith should know that 61 per cent of Conservative supporters were in favour of abolishing the council tax and replacing it with a local income tax, whereas 24 per cent opposed the measure.
It was a bit odd that Mr McMahon took issue with the SNP for having the audacity to raise a devolved issue in this devolved Parliament. The SNP is pilloried in the chamber for raising issues that are not of relevance to the Scottish Parliament and it is pilloried again for raising an issue that is relevant. Mr McMahon should be more consistent in his arguments; he should not attack us on such grounds.
Tavish Scott skilfully spoke to an amendment that set out the position of two different political parties. It was only fair that he did not spend much time arguing passionately in favour of the Labour Party's position on the council tax; he left that to the eloquence of Bristow Muldoon and others. Bristow Muldoon seems to live in a country that has no postcodes, because apparently it is impossible for the Inland Revenue to work out where people live in this country, to determine where they should be liable in relation to a system of local income tax.
If Mr Muldoon has remembered his postcode, I will happily give way to him.
Mr Swinney seems to fail to understand that his party's proposals would lead to 33 different variations on income tax and that it would be easier to evade his proposed tax, because people could put down postcodes at which no one was living to achieve lower levels of tax.
The last time that I looked at my correspondence from the Inland Revenue, it had my postcode on it. I cannot imagine that many members of the Parliament receive information from the Inland Revenue that does not have their postcode on it. Mr Muldoon's line of argument is pathetic.
Mr Muldoon also claims that the council tax is fair and takes into account the ability of individuals to pay because a person's income is in some way related to the value of their property. He suggests that the impending revaluation that the Labour Party will undertake if the council tax system continues will be okay, because people's circumstances have changed. What about the many individuals—my constituents and, I am sure, those of many members—who have stayed in the same house for 40 years? They brought their children back from the hospital to their house and watched them grow up there. Now their grandchildren visit them in the same house, but they may have to sell it, because property values have increased and they cannot afford to pay the council tax. The situation will become even worse under the Labour Party revaluation that Mr Muldoon described.
Given that the Inland Revenue writes to members of the Scottish Parliament because it has a special section that deals with us, will the member tell me whether the Inland Revenue would use the postcode for this address or for his home address? Would he pay local income tax where he resides or where he works?
My correspondence with the Inland Revenue comes to my home address in Perthshire and I cannot imagine that the situation is different for anyone else. Mr Monteith's intervention was very odd; perhaps he is doing something with his tax returns that he should not be doing.
Mr Monteith said to Mr Morgan that there is a correlation between income and property bands. Inflation has increased by 10 per cent and council tax has increased by 55 per cent since the Government came to power, whereas there has been a 200 per cent increase in average property prices in Scotland during the past 15 years, so the member's point has no substance.
The Conservatives also argue that difficulties can be solved by centralising control of education spending in the Scottish Executive, which is a bizarre proposition. Do we want to hand even more control over local education spending to a Scottish Executive that we in the Opposition constantly say has failed to deliver on its promises?
Will the member give way?
I will not give way, because I am running out of time. Mr Davidson should remember that he who pays the piper calls the tune. We could get into a dangerous position if we handed over control over education spending.
This is an SNP debate and I regard John Swinney as a man of principle. We have heard about poll watching and the Opposition. Why is it right in principle to abolish all taxation on domestic property? Why is every one of the small nations that the SNP usually lauds wrong to regard taxation on domestic property as part of the taxation system?
It is right in principle to abolish taxation on domestic property because we believe in fairness and in a progressive taxation system, in which what people contribute is based on their ability to contribute. Wendy Alexander talks about small countries. In 1997, 12 of the 29 countries that are members of the Council of Europe had systems of local income tax: Belgium, Bulgaria, Cyprus, Denmark, Estonia, Finland, Greece, Latvia, Norway, Romania, Sweden and Switzerland. The member should stop repeating absolute nonsense. She asks us for an example from a country that is in the settled financial position that we would like Scotland to be in. I want Scotland to be in the same position as Denmark, Sweden and Finland, which are small independent countries that take responsibility for their own affairs.
The local income tax is a fair and progressive system that is based on people's ability to pay. It strikes a chord with the principles of fairness and justice that exist in Scottish society. Although the Deputy Minister for Finance and Public Service Reform can talk about and perhaps even hide behind the independent review of local finance, he cannot hide for ever. Politicians must make choices and stand on their principles. The Scottish National Party will stand on the principle of its demand for a local income tax that is based on fairness and the ability to pay. I hope that other parties will do likewise.