Council Tax

– in the Scottish Parliament at 9:30 am on 24 January 2002.

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Photo of Tommy Sheridan Tommy Sheridan SSP 9:32, 24 January 2002

Had the two members who raised the points of order been present at my debate last year, they would have known that there were 22 contributions in the course of 90 minutes, during which we managed to discuss three issues. That is quite a healthy number of speeches. I hope that we will get the same level of contributions today.

Photo of Tommy Sheridan Tommy Sheridan SSP

No, thank you.

I open the debate by drawing members' attention to what the social reformer and socialist Richard Tawney said some 90 years ago. He said:

"What thoughtful rich people call the problem of poverty, thinking poor people call, with equal justice, the problem of riches."

Today is the third time that I have introduced a debate on the abolition of the council tax and on its replacement with a progressive, redistributive service tax to be levied on an individual's personal income. I make no apology for doing so because, in the three years of its existence, the Parliament has failed to tackle the obscene inequality of wealth that exists in this country. The Parliament has failed to introduce redistributive policies to improve the disposable income of the families on the lowest incomes. That is why this measure is so important.

Photo of Johann Lamont Johann Lamont Labour

Will the member accept an intervention on that point?

Photo of Tommy Sheridan Tommy Sheridan SSP

No, thank you.

The motion would replace an unfair and regressive council tax system. The council tax has been condemned by illustrious bodies such as the Institute for Fiscal Studies—as well as scores of others—for being acutely unfair because the families who are on the lowest incomes are charged more than those on the highest incomes.

Of course, it would be better if we had an independent socialist Scotland that had control of all Scotland's resources, including our oil, gas, electricity and finance sectors. We could then effect a wholesale redistribution of wealth and power.

Photo of Tommy Sheridan Tommy Sheridan SSP

No, thank you.

However, it is incumbent on the Opposition to try to use the limited powers of the Parliament to the maximum to effect a redistributive change. That is what the Scottish service tax would do. The proposal is radical and has been academically scrutinised and developed. It has been updated—

Photo of Tommy Sheridan Tommy Sheridan SSP

No, thanks. I do not want Pinky or Perky.

An updated research note has been provided to members to enable them to work out that the Scottish service tax would redistribute income significantly, especially for the lowest income households across Scotland. Those households and individuals who are on incomes of less than £20,000 per year—the overwhelming majority of income earners in Scotland—would pay significantly less under this tax measure. Those with incomes that are less than £10,000 per year—there are 882,000 of them in Scotland, which is a shameful statistic—would be automatically exempt without any means test being applied.

The Scottish service tax would impose a marginal rate of taxation of 12 per cent on those with incomes between £50,000 and £70,000 per year. For those on incomes of more than £90,000 per year, the marginal rate would be 20 per cent. I hope that Labour members will remember that even Thatcher imposed a 63 per cent marginal rate of taxation on the top earners. I therefore hope that Labour members will not oppose this meagre level of fair taxation and redistribution of wealth.

I move,

That the Parliament believes that the council tax is a fundamentally unfair and regressive tax; believes in social justice and the redistribution of wealth from the rich to the poor; therefore agrees to abolish the council tax and replace it with the Scottish Service Tax which is based on an individual's income and is inherently fairer, more efficient and redistributive; notes that the Scottish Service Tax would raise more revenue than the council tax and that it would remove the burden of paying for local government jobs and services from the shoulders of low paid workers and pensioners and place it firmly on the shoulders of the well paid and the wealthy, and believes that the introduction of the Scottish Service Tax should be complemented by the return of the right for local authorities to raise and retain their business rates and a thorough investigation of land value and speculation taxes to supplement local authority revenue.

Photo of Murray Tosh Murray Tosh Conservative

Before I call Peter Peacock to speak to and move amendment S1M-2631.2, I ask members to be respectful in the way that they refer to other members. I call Peter Peacock.

Photo of Peter Peacock Peter Peacock Labour 9:37, 24 January 2002

During yesterday afternoon's budget debate, I confessed to having a strong sense of déjà vu. The same applies this morning, as it is only a year since the Parliament debated a similar proposal from Tommy Sheridan. Yet again, as Robert Brown indicated, the fact that Tommy Sheridan has allowed precious little time for a proper debate on the issues demonstrates that his motion is more about grandstanding than about exposing ideas to proper parliamentary scrutiny. His proposals today are no more acceptable than they were last year; I am sure that Parliament will not take long to reject them once more.

Mr Sheridan's service tax would not be a local tax. People would pay all their current central Government taxes to the Exchequer and their Scottish service taxes to the Scottish Parliament. In one fell swoop, he would remove a vital element of local accountability that exists between the local electors who pay local taxes and their council, which is accountable to that electorate. The proposal would destroy the principle that those who live in an area should contribute towards the costs of local services and exercise discretion in the local service levels that they receive. Tommy Sheridan's proposal would also undermine the financial stability that we have provided for councils in recent times. More fundamentally, the service tax would put at risk the approximately £300 million of public expenditure that comes through council tax benefit, which people on low incomes in Scotland currently receive each year to help to meet their council tax commitments.

The property-based council tax provides councils with stable and predictable levels of income. With the three-year grant allocations that we have announced, authorities are able to give their local electorates the certainty of three-year indicative council tax levels. With a Scotland-wide income tax, that predictability would be lost. Mr Sheridan's proposals would also create additional unpredictability and instability in Scottish business rates. It would remove the power of local electorates to influence the budget decisions of their local council and replace it with a power for councils to place additional tax burdens on local businesses.

Furthermore, Tommy Sheridan argues for the retention of non-domestic rates at the local council level. That would be of no benefit to the councils because the way in which the grant system operates means that the grant that councils would otherwise receive would be reduced to equalise any increase in non-domestic rates revenue. That is called redistribution of wealth. It is interesting that Mr Sheridan argues so vehemently against the principle of wealth redistribution, which the Labour party supports.

Councils are collecting a higher proportion of council tax than ever before. The legislative changes that we have introduced for this year allow councils to start collecting one month earlier and to take action more quickly when people fall into arrears. That is helping the further increase in collection rates across Scotland. We continue to work with councils to improve further the efficiency and targeting of their collection arrangements. We look forward to seeing the outcome of the research into the operation of the council tax that the Local Government Committee has commissioned.

The council tax supports vital local public services. Mr Sheridan's simplistic tax proposal does not provide any sensible alternative. It joins his many other simplistic ideas.

I move amendment S1M-2631.2, to leave out from first "believes" to end and insert:

"welcomes the substantial reforms that the Scottish Executive has brought to the operation of local government finance, including the stability for three year council tax figures and welcomes the Executive's commitment to pursue further reforms; further welcomes the fact that councils are now collecting a higher proportion of council tax than ever before and the continuing work by the Executive and local authorities to better target and further improve collection arrangements, and notes that the Local Government Committee of the Parliament will shortly conclude its inquiry into local government finance and local taxation."

Photo of Tricia Marwick Tricia Marwick Scottish National Party 9:40, 24 January 2002

I start by expressing regret that Mr Sheridan has chosen to split the debating time available to him into three half-hour sections. It is, of course, Mr Sheridan's right to determine how his allocation of time is used. When this was discussed last year, as SNP business manager, I robustly defended his right—and the right of all non-Executive parties—to do so. However, it is clear that Mr Sheridan has no wish to engage in debate. There will be little time for meaningful speeches from other members.

The present system of council tax is undoubtedly unfair—it takes no account of ability to pay. For that reason, the SNP advocates a system of local income tax. However, a change in the method or form of collection cannot be considered in isolation, without an examination of how local government is financed at present. Such an examination would include consideration of the method of distribution of moneys from the Executive as well as consideration of the system of raising tax locally.

The McIntosh commission recommended that an independent commission should examine all aspects of local government in Scotland. Following the refusal of the Executive to set up such a commission, it has been left to the Local Government Committee to carry out a review. As the minister said, the committee will report shortly.

I do not want to pre-empt what the Local Government Committee may say, but it has been clear to me in my short time on that committee that few people or organisations are satisfied with the present system. Few organisations agree with each other on what should be done. The Convention of Scottish Local Authorities and the Executive do not even agree about the percentage of money that is ring-fenced or is for grant-aided expenditure: COSLA claims that the proportion that is ring-fenced is 30 per cent while the Executive claims that it is 10 per cent.

It suits the Scottish Government to take a smoke-and-mirrors approach to local government finance because Labour in government has caused an increase of £103 in council tax bills while services to the public are worse than they have ever been. Local government has been underfunded for decades. Schools are crumbling and lighting, footpath and bridge repairs have all but stopped. Social work services are at crisis point, with social work posts going unfilled and services to the vulnerable being reduced.

We need radical reform of local government finance and we need independence to free up the wealth of Scotland and to provide the resources and services that we need and desire.

I move amendment S1M-2631.1, to leave out from second "believes" to end and insert:

"notes that it is part of an unsustainable system of local government finance which, under Labour's stewardship, has resulted in an increase of £103 to the average householder's yearly tax bill while local services have deteriorated, and calls for a full review of local government finance which includes the replacement of unfair property based taxation with a system of local income tax, which takes account of ability to pay."

Photo of Keith Harding Keith Harding Conservative 9:42, 24 January 2002

As a Scottish Conservative, I firmly believe that a thriving enterprise economy is the best way of both ensuring the prosperity of Scotland and providing our people with high-quality public services. For easily understood economic reasons, people and businesses in Scotland should not be penalised by having to pay higher taxes than those paid by people and businesses elsewhere in the United Kingdom. Mr Sheridan wants to penalise people by picking the pocket of every hard-working Scot. The Parliament's tartan tax power can impose a maximum increase of 3p on the basic rate of income tax, but there is no ceiling for the Scottish service tax. The tartan tax, if implemented, would make the average Scottish family around £250 a year worse off, but Mr Sheridan's plan makes that cost seem insignificant.

Mr Sheridan tells us that many will be exempt. However, 27 per cent of households in Scotland already receive full or partial council tax benefit from a system that he claims is unfair to the poor. The facts are that the less well off do not pay council tax and that local services are already charged according to ability to pay.

Perhaps the most fundamental issue in this debate is the need to make local taxation democratic and accountable. The service tax proposal would further destroy local decision making as the Executive would determine taxes for local services. Councils would have even less autonomy than at present, as they would be able to set only their spending.

Even on practical grounds, the Scottish Socialist Party proposal would not work. It would be hugely costly and bureaucratic. However, the most serious effects would fall on our economy, as the introduction of a Scottish service tax would have extremely serious disincentive effects on businesses and entrepreneurs. If someone is rich and mobile, they will simply move, so reducing the overall tax take. As high-income earners flee, it will place the burden on low-income and middle-income earners and the tax will become more and more regressive. Taxpayers will vote with their feet. That will mean boom time for the north of England at Scotland's expense and it will produce poverty and unemployment traps for people on benefits.

The council tax may not be perfect, but it is fair, it takes account of ability to pay, it is easy to administer and collect, it allows for local democratic variation and it does not damage Scotland's economy. On each of those points, the opposite would be true for the Scottish Socialist Party's proposal. I urge Parliament to reject it once again.

Photo of Iain Smith Iain Smith Liberal Democrat 9:45, 24 January 2002

I have a terrible feeling of déjà vu because we seem to debate this subject every year and then throw it out. No doubt we will do the same today.

Tommy Sheridan is right to say that his tax proposal would redistribute income—it would redistribute income from local government to central Government, which is a strange thing to want to do. The tax would be set centrally and not by local government, so local government would lose the ability to determine its own tax rates and improve its own services. That would be odd and certainly not something that Liberal Democrats could support.

The council tax is not a perfect form of taxation. Liberal Democrats have long supported the idea of a local income tax and we will continue to work towards that. However, once we take account of benefits, the council tax is not as unredistributive as Tommy Sheridan suggests. That it requires a benefit system to make it fairer is a weakness of the council tax, but if we take account of benefits, we can see that the percentage of income that any group pays is roughly the same across all income ranges. The lowest percentage of their income that people pay on council tax is about 1.8 per cent, and the highest percentage is, I think, about 2.5 per cent.

Photo of Iain Smith Iain Smith Liberal Democrat

I am afraid I have only three minutes.

It is important to bear in mind the fact that taking council tax benefit into account removes what would be fairly severe regressive problems. That is not to say that the council tax is perfect. In its inquiry into local government finance, the Local Government Committee has considered how to make the system more progressive by increasing the number of bands—with more bands at the lower and higher ends to ensure that the banding system more accurately reflects differing incomes.

An interesting point that a number of people have made in evidence to the Local Government Committee—and, surprisingly, a point that the socialist party does not seem to acknowledge—is that a property-based tax takes account of wealth as well as income. It is interesting that the socialists do not seem to want a tax that has anything to do with wealth.

As I have said, the Liberal Democrats support a move towards a local income tax. We hope that that will happen in time. However, it will happen effectively only if the Parliament has more income tax-raising powers, because change would require a move from national taxation to local taxation to give local authorities sufficient scope to vary the tax and so vary their income.

It is interesting to note that the last party to suggest, as Tommy Sheridan has suggested, removing income from local government and having central Government taxation was the Conservatives—when they tried to buy off the poll tax by increasing the VAT rate to 17.5 per cent. It is interesting that the socialists want similarly to take powers from local government and give them to central Government.

Photo of Brian Fitzpatrick Brian Fitzpatrick Labour 9:48, 24 January 2002

Looking in the shaving mirror this morning and contemplating this debate, I had—a bit like Iain Smith—recollections of "Groundhog Day", although sadly there is no Bill Murray. Mr Sheridan's motion for debate this morning is the same as last year's. It is in exactly the same terms—motion S1M-2631 is motion S1M-1627. I thought that only disreputable lawyers gave the same advice twice and charged for the same thing twice, but apparently not. In any event, the motion pops up, we scratch our heads, feel a vaguely uneasy sense of déjà vu, and carry on.

I do not think that any Labour member has any particular dogmatic reason for persisting in levying and collecting the council tax. Any progressive—and certainly any left progressive—should be ready to keep policy and structures under continual review, in so far as the unchanging values of solidarity, community and fairness must be upheld and promoted in varying social circumstances.

The fundamental principles and values are constant, but the judgments and adaptations are renewed. We should not rule out innovation that might arise or recommend itself to us in changed circumstances. However, the proposers of innovations—particularly innovations that impact on the incomes of and services for working families—have a responsibility to demonstrate and provide evidence for the benefits that are claimed, to explain the consequences for policy and for infrastructure, to explain costs and to reduce or eliminate concerns about likely results. At some future date, we might inquire more broadly into the consequences of Mr Sheridan's programme for working families, but it is obvious that we are not going to hear the appropriate indications from the proposer today.

I want to outline some reasons why I will not support Mr Sheridan's motion and why I urge other members to reject it. The best reason for rejecting the proposal is that it would add to the current burdens on working families in my constituency and constituencies throughout Scotland. It would also put at risk the jobs that those families depend on and place all Scotland at an economic disadvantage. The proposal would hang a high-tax tag around the neck of the whole Scottish economy. Every working family knows that our economic success depends on our ability to attract investment, encourage growth and compete with neighbours who would quickly and willingly take up the businesses and skilled workers who would make a rational choice about where their best future lay. Moreover, the proposal would transfer the burden of local services on to those who make an income—those who work hard for a living. There is no mention of the asset rich; no longer is all property theft—under Mr Sheridan it is sacrosanct. I wonder whether that has anything to do with his entering the housing market.

The terms of the motion are yet further evidence of the centralism at the core of the proposer's beliefs. There is no mention of the role and independence of local democracy through local councils.

Photo of Murray Tosh Murray Tosh Conservative

No. The member is in the final minute of his speech.

Photo of Brian Fitzpatrick Brian Fitzpatrick Labour

I would love to give way.

The proposal is the total subjection of local communities to the determination of the centre. As Peter Peacock reminded us, lest those who support local income tax are tempted by the terms of the motion, the proposal is for a tax that would by no definition—save that anything said in defence of the revolution is necessarily honest—be a local tax. The tax would be set, collected and allocated centrally, presumably by a central committee, chaired, staffed and minuted by Mr Sheridan. All we need to hear is, "If you don't meet your quotas you'll get it." I urge members to reject the motion.

Photo of Murray Tosh Murray Tosh Conservative

Mr Fitzpatrick was the last speaker in the open debate.

Photo of Tricia Marwick Tricia Marwick Scottish National Party 9:53, 24 January 2002

Thank you for giving me an additional two minutes, Presiding Officer. This has been a very short debate. In summing up a debate, one usually refers to what previous speakers have said. Brian Fitzpatrick made a humorous speech and Keith Harding said, quite rightly, that the council tax is not perfect. Indeed, it is not a perfect tax; neither was the poll tax perfect, but I am sure that Mr Harding defended that tax to its death.

We need to rethink radically the way in which our council tax is determined and the way in which local government is financed. Iain Smith said that the Parliament needs more powers. He, too, is right. The real and radical changes that we need to make to local government finance will happen only when the Parliament acquires the powers necessary to do that.

Photo of Peter Peacock Peter Peacock Labour 9:54, 24 January 2002

As members on all sides of the Parliament have suggested this morning—Brian Fitzpatrick most eloquently—Tommy Sheridan's proposals are not realistic, credible or deliverable. They would undermine fundamentally the principle of local accountability, which is held dear by most members. Many of us came through the local government system and understand how important local accountability is.

Local authorities do not support the proposal. In written evidence to the Local Government Committee, which is investigating local government finance, COSLA said that the Scottish service tax would undermine local democracy and be less predictable than council tax. The service tax would lead to significant increases in bills, not just for the mega-rich, as is often portrayed, but for people on average and below-average incomes. It would replace local accountability with additional burdens on Scottish business.

In evidence to the Local Government Committee, those who created the Scottish service tax proposals acknowledge that their proposals would put at risk the £300 million-worth of council tax benefit that currently comes into the Scottish system. That money has a huge redistributive effect at lower-income levels—as Iain Smith described—but, under the proposals, it would be lost permanently to Scottish public service.

As usual, Tommy Sheridan's timing is immaculate—he is holding this debate on the day on which the Accounts Commission announces that in Scotland we are collecting higher proportions of council tax than ever before.

There are important issues about local tax that need to be debated. That is why the Local Government Committee is advancing its inquiry. The Executive looks forward to receiving the committee's proposals. As Brian Fitzpatrick and others have suggested, we should have an open mind about how we can refine and improve our tax system. Mr Sheridan's contribution adds nothing to the discussions that are already taking place in Parliament.

Photo of Tommy Sheridan Tommy Sheridan SSP 9:56, 24 January 2002

Mr Peacock referred to timing and, indeed, timing is of the essence. We are holding this debate only a couple of days after an NCH report confirmed that we still have 310,000 children getting brought up in poor families and 200,000 pensioners who are officially poor. In other words, nothing is changing in relation to poverty. Iain Smith's comments raise some difficulties and I advise him to read the Scottish Parliament information centre research note. The Institute of Fiscal Studies studied the effect of council tax and pointed out that the top 10 per cent in society pay 1.22 per cent of their income in council tax, whereas the bottom 10 per cent pay 7.5 per cent of their income. The IFS noted that taking benefit into account had comparatively little effect.

Photo of Tommy Sheridan Tommy Sheridan SSP

The centre for council tax reform states:

"after benefit the richest fifth of non-retired households pay 2 per cent of gross income in council tax, while the poorest fifth pay 5 per cent."

Iain Smith should check his facts. [Interruption.] There is a gaggle of geese here—will you try to get them under control, Presiding Officer?

Photo of Murray Tosh Murray Tosh Conservative

There have been some lively exchanges this morning, Mr Sheridan. It is for you to decide whether you wish to take an intervention.

Photo of Tommy Sheridan Tommy Sheridan SSP

I thought that it was obvious that I did not intend to give way.

Photo of Murray Tosh Murray Tosh Conservative

It helps for the member to say no or to make a gesture to indicate that they are not giving way. It is now clear that Mr Sheridan is not giving way.

Photo of Johann Lamont Johann Lamont Labour

On a point of order. Is it in order to define as a gaggle of geese members who want to participate in a debate on a policy, rather than listen to Mr Sheridan make the same points that he has made repeatedly over a long period of time?

Photo of Murray Tosh Murray Tosh Conservative

I acknowledge the point and I have already drawn Parliament's attention to an unfortunate expression that Mr Sheridan used earlier to refer to two Labour members. In the formality of debate, members must observe a proper degree of respect for other members.

Photo of Tommy Sheridan Tommy Sheridan SSP

I am sure that the two members to whom I referred are big and broad enough to take my comments in the playful way that they were meant.

On Johann Lamont's point of order, it is interesting that I am accused of not allowing proper debate on the issue and then I am accused of bringing it back for debate three times.

Photo of Tommy Sheridan Tommy Sheridan SSP

That is a bit of a contradiction—either there is proper debate, because it has been on the table for three years— [Interruption.]

I am sorry, but I cannot hear myself think.

Photo of Tommy Sheridan Tommy Sheridan SSP

In relation to the squeals of anger from Labour benches about higher rates of taxation on the wealthy, I remind Labour members that we already impose a 60 per cent rate of taxation—we impose it on the poor. I remind members that 950,000 people are subject to the withdrawal of benefits—council tax benefit and housing benefit—as soon as their income rises. Instead of being tough with the poor all the time, is it not time that we got a wee bit tougher with the wealthy and the rich?