Scottish Churches Parliamentary Office, Edinburgh - Briefing Document Thirteen

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Parliamentary Officer:Rev Graham Blount
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Briefing Document No 13 - Page 2 of 4

Local Government Finance - Continued.

Financial Pressures on Local Government
Pressure has been growing on local government as they have been asked to implement improvements in key services to serve the Executive's programme: working for social inclusion in local communities, improving education through implementing the McCrone report and renewing care of the elderly in the light of the Sutherland Report. This will place further serious pressure on local authorities' financial priorities. Alongside these concerns are issues of money for pay reviews, a perceived lack of understanding by central government of inflationary pressure at the authority level and a backlog of capital repairs to schools and roads of over 2.5 billion.

Possible Alternative Sources of Income
The natural extension of devolving power and renewing local democracy is to give greater financial responsibility to the democratically elected local authorities, but implementing this is far from simple.

For any tax to be considered "a good tax" it must meet three criteria - have a broad base, be fair and be easy to collect. The current Council tax was introduced as a fairer replacement for the community charge. It is easy to collect and has a reasonably wide base, but rebates are often not taken up and it is not progressive enough for some critics.

1. It would be relatively simple to reform the existing council tax to exempt the poorest, and to increase higher bands beyond existing levels to make it more progressive.

2. Bringing non-domestic rates under local control would seem to be a simple way to give local authorities more control over finance as they already collect the rates. The business community is strongly opposed to this, and cross-border problems could again be problematic for economic development; poorer councils would also be worse off without central government re-distribution.

3. The Scottish Socialist Party has suggested replacing the council tax with a local service or income tax (LibDems also have a long-standing interest in local income tax). As proposed, it would be very progressive with exemptions for the 800,000 people in Scotland who earn 60% of the median wage or less, and far higher tax rates for those on incomes over £40,000. If, as proposed, it were to be set nationally with no local variation it would increase rather than decrease the centralisation of power.

4. A local sales tax could take the form of a locally controlled percentage of all retail sales, levied at the point of sale. Set at 4% it would raise approximately the same as the council tax, but without the extensive zero-rating of essential goods it would be a regressive tax. It would benefit authorities containing major retail centres like Glasgow and Edinburgh, perhaps leaving other authorities with less income unless the government redistributed the revenue. On the issue of local variations, evidence from the USA shows substantial border-crossing problems when tax varied by more than 0.5% at the local level.

5. A local tax that avoided the cross-border issue could be one that placed a levy on utility bills, but without a complex system of rebates this would again be regressive with the poorest paying a higher percentage of their income in tax than the rich. However, it would be simpler to collect and predicting the total tax revenue would be easier.

6. Land Value Taxation is a method of raising public revenue by means of an annual tax on the rental value of land (meaning the site alone, not counting any improvements). It would replace existing taxes. Each piece of land would be assessed regularly and the land value tax levied as a percentage of that value. This is claimed to be fairer than other local taxes, and socially beneficial in terms of land use and enterprise; there is some political interest in what would be a very radical step.