– in the Scottish Parliament at 10:13 am on 21st June 2007.
The next item of business is a debate on motion S3M-201, in the name of Derek Brownlee, on council tax.
Our motion is straightforward. It does not say that the council tax is perfect, that it cannot be reformed or, indeed, that it cannot be replaced if a better alternative can be found. It says that the council tax should not be replaced by a local income tax.
I do not believe that there is in Parliament a majority who are in favour of a local income tax, although I guess we will find out soon enough. We know that the Scottish National Party supports a local income tax, at least in name, and that the Liberal Democrats have supported one for some time, but it is a proposal that has not been supported by the Conservatives, the Labour Party or the Green party in the past. By voting for the motion in my name, members have the opportunity to move the debate on. By rejecting a local income tax, we can focus on reform of the council tax—or on its replacement, if a better alternative can be found.
There are many proposals on how the council tax could be reformed or replaced. The Conservatives, for example, have proposed a discount for pensioners. Like other members such as John Swinney, we recognise that too few pensioners take up the council tax benefit to which they are entitled. We can and should do everything we can to increase take-up, but our suggestion of a pensioner discount, which would not involve means testing but would, like the single person discount, be given automatically, would make a major difference to the lives of many pensioners in Scotland. It would be easy to understand, simple to implement and universal in application.
I was rather surprised to find that there was no SNP amendment to my motion. After reading today's Scotsman, I thought that Alex Neil might have lodged an amendment to promote a pensioner discount of his own.
If the member has read the article in question, he will have noticed that my proposal is not a substitute for a local income tax, but an interim measure. I suggested a cash—rather than a percentage—discount, which would fair and progressive, unlike the Tory proposal, which would be unfair and regressive.
I read today's Scotsman article, just as I watched with interest the member's performance on STV some weeks ago, during which he said that such a proposal would get the Government into the good books of pensioners. How right he was. We would be happy to explore any meaningful discount for pensioners, either with Mr Neil or with the ministerial team. After all, we have heard a great deal in Parliament's new session about the need for new politics, for party differences to be put on one side and for us to act together in the best interests of the country. In that spirit, I urge all SNP members not to reject out of hand the principle of a pensioner discount merely because it is supported by Alex Neil.
As well as contributing to the political life of the nation through articles in The Scotsman and appearances on television, Mr Neil has lodged a number of parliamentary questions. We await the answer to the one that he lodged today about the cost of his proposal. I note that he has asked a parliamentary question about ministers' pensions, but the one that really interests me is about the cost of a percentage discount for pensioners. The answer shows that it seems to be getting cheaper.
In a debate last year, when Mr Swinney was in opposition, he costed our proposal for a 50 per cent discount at £364 million a year. We disagreed with that costing. This year, in his response to Mr Neil—we disagree with some of the assumptions that he has used—he costed it at £286 million a year. We think that the real cost is about £200 million; I rather suspect that the cabinet secretary wishes that all the proposals that are being made to him were falling rather than rising in cost. It was interesting to note that in today's Scotsman article that Mr Neil is worried about whether the money would be available to fund a pensioner discount. It is nice to find that there is an SNP member who is concerned about having sound public finances. We believe that a pensioner discount is affordable and that all that is required is the political will.
I move on to the case for rejecting a local income tax. We know that the new Government wants to introduce a local income tax, but the SNP's proposal, although it is a tax, is neither genuinely local nor fully related to income. Serious problems are associated with a local income tax that could be varied by each local authority, because there would be 32 different rates and logistical difficulties in tracking people as they move across local authority boundaries. That may be one reason why the SNP has suggested a flat rate for all Scotland's local authorities. The proposal does not seem to have found favour with the Liberal Democrats: in a recent press release, Robert Brown called for a "genuinely local" local income tax. When the Liberal Democrats move their amendment, it will be interesting to hear
The member has highlighted the difficulties of having 32 different local income tax rates, but do we not already have 32 different council tax levels?
The critical point is that the unit that is taxed under the council tax is property, which does not move, as opposed to people, who do.
The SNP's proposals do not represent a tax on income—they represent a tax on earnings, but not on interest income or dividend income. I do not believe that we should penalise those who have put money aside or who have invested in shares, and who live off the income that their savings generate. Equally, I do not understand why the SNP believes that it is fair to tax the majority of people who have not been able to save and must work to provide for their families, but not to tax people with exactly the same income who happen to receive that income from a different source.
A local income tax would not apply merely to earnings from employment because self-employed people would also pay it. There is some confusion about whether the new Minister for Enterprise, Energy and Tourism really said during the election campaign that it would be naive to increase income tax in Scotland. If he did, it was naive of him to say that in the middle of an election campaign, but he was right. Scotland will not prosper if we tax our small and growing businesses more than their competitors in England are taxed. Parliament should not give businesses in Cumbria a competitive advantage over those in Dumfries and Galloway, any more than it should give businesses in Berwick an advantage over those in the Borders.
Today, Parliament can give Mr Mather and his colleagues the opportunity to drop plans to impose a local income tax on businesses large and small and can send a clear signal that whatever different views we may have on local taxation, we do not support a local income tax. We have the opportunity to move the debate forward.
That the Parliament does not support the introduction of a local income tax as a replacement for the council tax.
Labour is in agreement with the central thrust of the motion that is before us today. Maintenance of a property-based local tax system strikes a balance between different sources of
To move to a system based wholly on earnings would narrow the base of those who contribute in a way that would inevitably increase the burden on working families, in particular. The extent of that additional burden has been estimated at between 6.5 and 7.9 per cent, depending on how the tax burden is distributed between different tax bands. The nationalists' proposals are entirely dishonest, because they claim that a local income tax set at 3p in the pound would meet the needs of local government: that that is evidently not the case is the most fundamental criticism of the SNP's proposal, which promises pensioners that they can be taken out of paying for local services, while promising families that their share of the cost will increase only if their income exceeds £60,000 and promising council workers that their jobs will not be jeopardised by the change. All three of those statements will turn out to be untrue.
Other criticisms can be made. It turns out that the SNP's local income tax would be nothing of the sort. The SNP is proposing a nationally set and collected system of taxation that would obliterate local democracy and leave every council entirely dependent on allocations from Mr Swinney. That is not a prospect that many of them or their electors will relish. Mr Swinney has made much of his desire to reduce the number of quangos and to give some of their responsibilities to local government, but if local government is emasculated and all its revenue and expenditure determined by Mr Swinney, the result will be increased central control, rather than more local autonomy.
Our amendment is aimed at securing greater honesty and transparency from the Government—a big task, I realise, but one must try. In its manifesto, the SNP said that it would introduce a freeze on council tax as part of its preparations to replace the tax with a new system. I hope that that means that significant additional resources will be handed over to local government, to ensure that
Even more important is that we must, before we embark on this journey, be clear about the destination. It is essential for the SNP to set out its intentions for the key policy commitment in its manifesto—one that featured on page 1 of every leaflet, immediately after the picture of Alex Salmond, the poster boy for man at C&A. It is not good enough for the SNP to put its flagship policy in the "too difficult" box, as has been acknowledged by Mr Neil, with his interim proposal. The SNP's full proposal for how it intends to replace the council tax with a "local" income tax must be brought before Parliament in the autumn, so that the scrutiny process can begin before local government finance is thrown into turmoil.
I am not saying that the present system is perfect. We, along with the Conservatives and other parties, recognise that there are problems with it, because of its impact on certain pensioner groups.
Will the member acknowledge that the vast majority of people who pay their council tax do so out of their monthly income? The tax is not related to an asset that they cannot realise. A local income tax, which people could pay monthly, is the right solution.
That was not a particularly profound or significant contribution. People pay their council tax, as they pay their income tax, out of their income. Pensioner contributions and the way in which the burden of council tax falls on particular groups of pensioners are an issue. There is a significant debate that Parliament needs to have about whether that would best be dealt with by the Conservatives' proposal for the introduction of a pensioner rebate that would apply to all pensioners, by Labour's suggestion that the burden of water charges be relieved, or by altering the arrangements for rebates and tapering. However, the Government has brought forward no proposals for us to examine. We need to have those before we opt for a system that will significantly disadvantage local government and, through that, the people whom all of us represent. It is time for the Government to put up or shut up. If it has proposals, it should let us see them by the autumn.
I move amendment S3M-201.4, to insert at end:
"and further requires that any proposals for a new system should be published by Scottish Executive ministers before the Parliament considers Stage 2 of the 2008-09 budget process."
I welcome the opportunity to debate this important area of Liberal Democrat policy. I know that it comes as a surprise, given my disagreement with Mr Swinney on a number of transport projects, but I agree with him on this policy. I give clear notice that the Scottish Liberal Democrats will work with the SNP Government on the issue. Before the election we said that we would, and we will do so when proposals are brought forward. I agree with Mr McNulty on one point, however; it is incumbent on the Government to introduce proposals that should rightly be scrutinised. We look forward to playing a constructive role in that process.
Council tax is a burden on the most vulnerable people—pensioners, the average hard-working family and young people who are starting out on their careers. It is unfair and unfixable.
While the Conservatives and Labour are content to tinker at the edges—and remain so this morning—we seek a fair replacement that is based on the ability to pay. Under a local income tax, 70 per cent of households would be better off. The move would benefit the average family and take half a million pensioners out of paying local tax altogether.
In a minute.
These are important areas on which to move forward. As Mr Brownlee fairly pointed out, today's debate is about the principle of progressive taxation. I acknowledge the Conservatives' opposition to that principle, but I must say that I have always been a little surprised that my former colleagues in the Labour Party have never supported the contention that an important element of our tax system should be progressive local taxation. I and the rest of the Liberal Democrats are very keen for Parliament to endorse the principle today.
Mr Brownlee and Mr McNulty have already given a lot of attention to our position, but they did not pay as much attention to the reality of their own alternatives. As they were put to the independent review of local government finance, Labour's rebanding proposal would result in half of households paying more and no one paying less. If Scotland keeps the council tax, it must be revalued at some point; after all, it cannot be
The one argument that was advanced by Mr Brownlee that I might agree with is that, whatever system is introduced, it will have difficulties. Many of us who went through the Burt inquiry know all about that. In any case, it is very honest and brave of the Conservatives to make arguments for reform. After all, we remember their main reform in this area: Mrs Thatcher's Government introduced the poll tax some years ago, and it has not been that long since Michael Howard called it the fairest form of local taxation. Nothing in the proposals that have been outlined by the Conservatives would change that position. Even their proposed 50 per cent council tax rebate for pensioners fails to be fair. The Institute of Fiscal Studies has shown that, under such a measure, the poorest 10 per cent of pensioners would receive on average £185, while the richest 10 per cent would receive on average £470. Is that really fair? I suggest to Parliament that it is not.
We hope that that a majority in Parliament will vote to allow the Government to introduce proposals on a vital issue that affects every household in the country, and we look forward to a constructive debate on what should be an essential principle of any basic tax system.
I move amendment S3M-201.2, to leave out from "does not support" to end and insert:
"believes that local income tax, which is based on ability to pay, is a fairer system of local taxation than the discredited and unfair council tax and notes the position of the Green Party in regard to land value taxation."
Still in hope—and almost certainly not for the last time—I bring to the chamber the subject of land value taxation. On 30 January 2003, Parliament passed a motion to give further consideration to LVT. Only the Conservatives voted against it—although I should note that Labour, in a somewhat curmudgeonly mood, simply abstained. Although the Parliament and the Executive have not taken forward the spirit of the motion, Mark Ballard took LVT into his portfolio and, over the past four years, was able to present evidence to the Burt committee and to prepare a proposal for a bill.
The Burt committee came out comprehensively against both a local income tax and the council tax. Instead, it proposed a local property tax, but it also spent a considerable amount of time on LVT. Its response was pretty ambivalent; to be honest, I suppose that one could say that it was gently negative about the proposal, without undermining the case completely. However, on each of the seven criteria on which the inquiry decided to judge LVT—effect on behaviour, fairness, public understanding, financial effects on households, valuation issues, taxing the owner instead of the occupier and transitional issues—we can certainly argue fiercely for the tax and against the report's conclusions.
For example, the Burt report says:
"We understand that more than 700 cities worldwide apply a land value tax in some form, including cities in Australia, eastern Europe and the US State of Pennsylvania. However, it appears that the proportion of revenue coming from land taxes in Denmark" and other countries seems to have dropped. Well, so what? The report goes on to say:
"Despite considerable evidence, there is no 'ideal' model in operation that we could identify."
So the committee rejected LVT because it could not pick an ideal model out of 700 examples. Perhaps we should reverse that position and instead highlight the fact that 700 cities have managed to construct a form of LVT that suits their own circumstances. The committees and the chamber should at least be able to have a full discussion about the possibility of constructing for Scotland, or—as in the United States—for our individual cities, our own Scottish version of LVT.
The Burt committee cast aspersions on the fairness of the tax. However, evidence based on comparisons with the council tax showed that, under our LVT model, people in the lowest bands would pay less and those in the highest would pay considerably more. One of the criticisms of council tax is that it is not fair; our version of LVT would be absolutely fair.
We believe that LVT promotes fairness, productivity, equity, convenience, democracy, enterprise, efficiency, precision, environmental sustainability and the avoidance of disputes. [Interruption.] An ex-minister is interrupting me from a sedentary position. Surely a tax that offers all those advantages should at least be considered by the Parliament.
I move amendment S3M-201.3, to insert at end:
"notes the decision, made by the Parliament on 30 January 2003 but never fulfilled, to consider and investigate land value taxation, and calls on the Scottish Government to fulfil this commitment before the introduction of legislation on the future of local government finance."
The Government has said consistently that it is committed to abolishing the unfair council tax as part of its agenda to create a wealthier and fairer Scotland. The council tax is undeniably unfair and regressive and hits people on low incomes, particularly pensioners and others on fixed incomes.
I note from the motion—and from Mr Brownlee's clear remarks—that its proponents have not said that council tax should be retained; they have simply said that it should not be replaced by a local income tax. I welcome the tacit acknowledgement both in the motion and in Mr Brownlee's speech that the council tax has had its day.
Do I take it, then, that the SNP will support our motion at decision time?
I am delighted to say that—not for the first time and, I hope, not for the last—I will vote enthusiastically for Mr Scott's amendment.
There are many arguments against the council tax. As I have said, it is regressive and attacks people on low incomes. Indeed, those who are on the lowest incomes pay about 5 per cent of their net income in council tax, while the richest pay about 2.5 per cent. The tax also severely penalises pensioners. Since 1996-97, there has been a 62 per cent increase in council tax, but pensions have increased only by 43 per cent. As a result, pensioners' incomes have been hugely hit.
During the election campaign, this Government proposed its alternative of a local income tax in response to our assessment of the council tax. I will say a little more about how we intend to take the matter forward, but I want to spend a moment on the Conservative and Labour proposals. The Conservatives would reduce council tax for all pensioners, including those who are well able to pay. Such a measure takes no account of ability to pay and therefore retains the council tax's inherent flaws. Indeed, I find it interesting that the Conservative motion does not advance the proposal for a pensioner discount.
As for the Labour Party's position, it would be generous to call it a total shambles. Before 2003, Labour told us that the council tax was unfair, and then it spent four years doing absolutely nothing about it. It told us to wait for the 2007 election campaign, when all would become clear. It proposed two new council tax bands, which would mean that 11,000 tax payers in band H would somehow pay for council tax reductions for 530,000 households in band A.
Providing a £100 reduction for half of those in band A would cost around £26.5 million, which is more than is raised from all band H tax payers. The Labour Party told us to wait for the answers and we waited for months, but its scheme hardly lasted the day on which it was announced during the election campaign.
The Government has exciting proposals to present on local taxation.
We will consult on detailed proposals later this year and I hope that Mr McNulty will support us when we present our proposals to Parliament. We will listen to the views of other parties, key stakeholders and the people of Scotland, who foot the bill.
Introducing a local income tax will take time, so we will take early steps to offer support to those who have suffered as they faced larger council tax bills each year. That is why we will do all we can to avoid council tax increases. Our aim is to deliver a freeze on council tax rates until that tax can be replaced by a fairer system.
To achieve that, we need a positive and productive relationship with local authorities in which we respect their primary role at local level, support their essential role in local governance, free them to exercise their responsibilities and establish the financial framework in which the tax freeze can take place. My energies are focused on that to relieve individuals in Scotland from the burden of council tax in the short term.
We stood for election on a platform of abolishing the unfair council tax. We are determined to deliver that in the lifetime of this parliamentary session and to honour our commitment to the people of Scotland. It is a sign of the times that I am pleased to support the amendment in the name of Tavish Scott.
We move to the open debate. There will be four-minute speeches, which will be tight. I have already had to tell a member that he will not be called and I may have to tell another member the same thing. I call Margo MacDonald, to be followed by Bill Wilson. You have four minutes, Ms MacDonald.
I shall endeavour to be brief, Presiding Officer.
I have to tell members that Robin Harper's land value tax proposal is winning me over. However, I accept what he said, which is that this will not be the last time that we hear of his proposal in the chamber; I imagine that debate on it will be a long haul. The choice that I face today is whether to
I have not come to this question late in the day. I wrote to Alex Salmond during the election campaign and asked him about the Scottish National Party's policy on the replacement of the council tax, but he has not phoned and he has not written. I will, therefore, put my questions to John Swinney.
The SNP's proposed 3p tax rate would be set nationally and, according to the SNP's March statement, it would be collected through HM Revenue and Customs at Westminster. Does Mr Swinney have Westminster agreement on that? That is a straightforward question.
If money is to be allocated to a council according to the income that is raised from income tax payers in the council's area, what would be the financial position of those Scottish councils that have a low income-tax base because of the level of poverty in their areas? How would that problem be tackled? Can John Swinney provide examples of the expected tax yield from Edinburgh, for example, compared with the Western Isles or the Vale of Leven? That would give us a parameter for comparing benefits for different taxpayers.
How would a dispute be resolved between a council and HM Revenue and Customs about the accuracy of the figure for the amount of local income tax to be raised in a local authority area, given that employers hold the information on the place of abode of the LIT payers?
I foresee a great number of practical problems in what John Swinney is attempting to do, because he is attempting to make a silk purse out of a sow's ear. Without having at his disposal the full panoply of fiscal measures that could be applied by any Government in Scotland, he cannot successfully bolt on this brave attempt to bring in a fairer system of paying for council services.
It is important that we have straight answers to straight questions. Will Mr Swinney expect employers, particularly small business employers, to carry the additional administration costs for the proposed local income tax? Employers, not HM Revenue and Customs, are the actual gatherers of PAYE tax. That is another of the questions that I asked of Alex Salmond and which I now put to John Swinney and his team.
I regret that I cannot enthusiastically support the introduction of a local income tax, because, as I said, I do not believe that the proposed scheme is a local income tax. My vote will depend on whether I believe the putative payer of the local income tax will benefit. Has an estimate been made of the expected revenue? How would that revenue be redistributed? I think that that is the clincher.
The promise is that the council tax will be frozen for two years. What would happen if HM Revenue and Customs took longer than two years to work out a system for the proposed local income tax? The period of two years seems rather prescriptive given the history of HM Revenue and Customs, for example its handling of the tax credit system.
I apologise, Presiding Officer, for only asking questions, but time is short.
In developed countries, there is strong evidence that health differences reflect differences in wealth—that is, in the degree of income inequality. Bluntly, the relatively poor die younger. Like smoking, regressive taxation kills. However, it is not just health that is affected by income inequality. The report by Jackson and Segal highlighted the range of ills that a society such as the United Kingdom, with an unequal division of wealth, can expect.
Today, we have the opportunity to build a new consensus on taxation. We have had the poll tax, which was the Tory solution for local taxation. Quite rightly, it sparked massive protest and, quite rightly, the Tory party likes to forget that deviation into unjust and unpopular taxation.
We followed that with the council tax. What can we say about that tax? Is it less unfair than the poll tax? Perhaps that is so, but it is hardly the crowning achievement of a taxation system. It is time for change—real change. The Tory party, having dabbled in reform and played with the poll tax, and having burned not only its fingers but its hands, arms and most of the rest of it, has now decided that it is better to tinker than to play. Thus, there is the cry from the Conservatives to reduce the tax bill of pensioners, which is a worthy aim. However, the Tory proposal would mean that the largest gainers would be the top 10 per cent of pensioners, who are also in the top 20 per cent of high-income households. The Tory proposal would hardly be a progressive tax.
Certainly, many poorer pensioners would receive help, but what about the poor in employment? What about those on the minimum wage? Around 25 per cent of Scotland's children live in poverty and the Conservative proposals would leave them in poverty. The Tory proposals are superficially attractive, but they would leave many of the poorest in our society out in the cold.
These are the days of consensus politics—so Alex Salmond told me—so I will finish my comments on Tory policy on a consensual, positive note. I warmly congratulate the Scottish Conservative and Unionist Party, not on its name but on not attempting to reintroduce the poll tax.
Let me point to Sweden. That country has a local income tax and its gross domestic product figure is higher than that of Scotland. It also has lower crime rates than Scotland's and has a fairer distribution of income than we do. Have I mentioned that Sweden is independent?
A local income tax is based on the ability to pay and it is a fair and just tax. It would reduce the taxation burden on families living in poverty and help the 25 per cent of Scottish children who are raised in poverty. A local income tax would not end all society's ills or even improve the weather, but it would be a step in the correct direction. I am sure that some in the Labour Party still hold to its once-traditional values and believe in taxing people according to their means. I am sure that a few in the Labour Party still believe in progressive taxation.
How does one judge a civilised society? Are the criteria its education and health systems, and its humanity? I would add to that list its distribution of wealth. That is why I support a local income tax—progressive taxation for a progressive people.
I will take a leaf out of the SNP's book and say that this debate is about constitutional issues, above all. Local government has no constitutional status whatever in our country, which is wrong and must change. The role of locally elected councillors in determining levels of local taxation for local services is a fundamental aspect of a properly acknowledged constitutional role for local government in Scotland—it is what differentiates local government from local administration. Centrally determined local taxation is a contradiction in terms and is wrong in principle. The same argument applies to individual instances of hypothecation or so-called ring fencing.
Will the member draw into his argument the fact that 80 per cent of current support for local government also comes from central Government taxation?
Yes. That is a pity. The proportion was not always 80 per cent and need not remain so. Why not have stronger local government?
It is unfortunate that centralisers are well represented in the Parliament. I fear that John Swinney might be among them. In January last year, he advocated giving a £93 million windfall to councils, but only if they used the money to maintain council tax stability. I am not against council tax stability; there have been no above-inflation increases in council tax under Labour in Glasgow City Council for nine years, and I was council leader for six of those years. Council tax
We acknowledged that many perceptions about excessive council tax rises are attributable to recent significant rises in water charges, which are perforce collected alongside the council tax by councils. That is why Labour's manifesto proposed to phase out water charges for pensioners.
We should not give John Swinney the power to set a new national tax at 3p in the pound for council services—the real cost would be 5p in the pound. John Swinney is already famously burdened with 38 ministerial responsibilities. I was relieved to learn that he had recently given up his paper round and I know that he is assisted by Stewart Stevenson's encyclopaedic knowledge and Jim Mather's fiscal fairy dust, but no one politician should be given so much power.
The Liberal Democrats' proposed local income tax would at least be local, but the administration of 32 different rates would be an unaffordable nightmare for employers.
Let us get council tax reform in perspective. According to the Scottish Parliament information centre, the average band D council tax rise during the past 11 years has been 15.5 per cent cumulatively, in real terms, whereas house prices doubled in real terms between 2000 and 2005. I accept that the increased equity is a form of wealth that is not readily accessible by homeowners who are on fixed incomes.
Two major parties—and Alex Neil of the SNP, who has left the chamber; that is the first time that I have seen him run away from a fight—support putting in place measures that will address concerns quickly, but if members support independence for local government they should not support calls for a new income tax.
My experience of local taxation, rather like that of Charlie Gordon, has been formed by my working in local government for nearly 20 years, by my being a councillor for 11 years and, before that, by my studies of local government finance. Whether I was a student of local government finance, a local government employee or a councillor—and, like Charlie Gordon, a council leader who had to propose council tax increases—it was always clear to me that a property-based tax such as the council tax is inefficient and unfair.
Council tax is now defended by new Labour—although perhaps not much by Charlie Gordon. Labour clings to the council tax with a tenacity that
The Tories, too, defend the council tax, but in speaking to a motion that is against local income tax they have acknowledged the failures and limits of the entirely discredited council tax. The fact that during the election campaign they described their proposed reforms to the council tax as radical shows how poor the tax is.
The fundamental limitation of council tax as opposed to local income tax is that it is not a buoyant tax. Do the two parties that still support the council tax also support a revaluation? They must do so, because that is the corollary of their position. Labour and the Tories should be up front and admit that we cannot have the council tax without a revaluation, which is long overdue, for political reasons.
Charlie Gordon knows as well as I do that local taxes have been used for far too long by the Conservatives and Labour to push through tax increases that the parties did not want to push through the income tax system. Local government and local government tax payers have paid for national policies that have been implemented by local government without being properly funded.
The real problem is that after the poll tax, which was a disgrace, there was no proper scrutiny of the council tax. People were so eager to get rid of the poll tax that they embraced the council tax too quickly.
The defining feature of a local income tax system is that it is fairer. People pay according to their ability to pay, as Bill Wilson said. The old nostrum, "from each according to their ability to pay" is useful in this context. A local income tax would also be cheaper to collect. It costs £65 million to collect the council tax, but it would cost around £25 million to collect a local income tax, according to the Chartered Institute of Public Finance and Accountancy.
Would that figure apply to what is proposed for Scotland, which would not be a local income tax and would miss out much of the local administration?
The CIPFA figures do not go into that detail, but the system that we propose would be even cheaper to administer.
About half of pensioners fail to take up council tax benefit, which exacerbates the unfairness of the current system. Local income tax collection
Local government leaders are fed up to the back teeth with the prevarication in the Parliament, which reached its highest level of absurdity when the former First Minister rubbished a study that he had commissioned before it was even published. Local government finance is creaking at the seams, and people who are on limited incomes are struggling to pay their council tax, sometimes having to choose between paying the council tax and paying a heating bill. Many pensioners have an old-fashioned attitude and would far rather pay the bill that they have been sent than incur new expenditure, even when such expenditure might save their lives.
It is regrettable that at a time when change to local government taxation is desperately needed, the Tory motion does not advocate change. The Tories criticise the Government for not coming forward with proposals but have failed to include proposals of their own in the motion. I support the amendment in Tavish Scott's name.
The financing of local government has been one of the most contentious areas of political debate in this country during the past 30 years. During that time, we have moved from rates to the council tax, via the community charge. Alternative taxes have been proposed, such as the local income tax that is beloved of the Scottish National Party and the Liberal Democrats, and the land value tax that is passionately advocated by the Greens—in particular, by Robin Harper in his speech.
The former Scottish Executive instituted an inquiry into local government finance under the chairmanship of Sir Peter Burt. No doubt the partners in the now-dissolved partnership had different expectations about the outcome. Labour probably expected a series of recommendations for reform of the council tax, perhaps by the addition of bands or adjustment of the ratios between bands. The Liberal Democrats might have expected the Burt committee to endorse the concept of a local income tax, in a partial echo of the Layfield committee's recommendations in 1973, although it should be noted that Layfield favoured local income tax not as a substitute for rates but as a supplement to rates, with a view to increasing the proportion of local government expenditure that was met from locally raised taxes.
In the event, and no doubt much to the chagrin of both parties, the Burt committee refused to play ball and came up with an option of its own: a local property tax, levied as a percentage of the market
Has Mr McLetchie reflected on the fact that the Burt report also contained a measured rejection of the council tax?
There were many criticisms of the council tax, but the council tax is the status quo and those who want to change it will have to advocate the case for change. The case for change was quite clearly demolished by Burt, and that is the essence of this morning's debate.
It is interesting to reflect on how quickly the debate has moved on. Burt has mortally wounded the whole concept of a local income tax and, even from people who support the idea, he has extracted an acknowledgement that any such system would take years to introduce and would require the whole-hearted co-operation of HM Revenue and Customs—co-operation that I feel would be very unlikely to be forthcoming.
In the meantime, we need to address deficiencies and weaknesses in the current system. It was the Conservatives who first proposed the introduction of a council tax discount back in 2005; we proposed it again at the recent Scottish Parliament election. The policy is attracting growing interest. Back in the summer of last year, it had the support of Bristow Muldoon, formerly the Labour MSP for Livingston. Furthermore, Alex Neil of the SNP—never a man to let a good idea pass him by without trying to claim it as his own—has this week echoed the Conservative view that a council tax discount for pensioners should be introduced by the Executive.
The form of the discount—whether a percentage or a flat rate—and its level are matters for debate. The question of affordability will also have to be considered in the context of the overall budget. However, members should be in no doubt that we on this side of the chamber welcome Alex Neil and others as recruits to our campaign on behalf of Scotland's pensioners. We look forward to Alex Neil being joined by more of his colleagues in the SNP and to the introduction of a discount scheme by the Government. We welcome their support and the support of other parties.
Modestly, we Conservatives do not claim a monopoly of good ideas in this Parliament. In the
I start by turning my thoughts to another system of taxation that we have already heard a little about this morning. It was brought in by the Conservatives—first in Scotland in 1989, and a year later in the rest of the United Kingdom. It was, of course, the loathed poll tax. I was at secondary school at the time, and my personal protest against the poll tax was the wearing of a T-shirt to school with a large, tabloid-style message on the front. The message would have left any reader in no doubt about how strongly I, as a teenager, felt about the poll tax.
Strong feelings against the poll tax were the order of the day. Direct action, non-payment and even riots signalled people's anger.
No, thank you. We have limited time.
I remember the pressure that the poll tax put on the relationship between my father—the head of the household—and me, over whether the poll tax should be paid and over whether we could even afford to pay it. The poll tax led to pressure and conflict in homes, and to anger, direct action and riots in society.
I think that it was Tavish Scott who said earlier that Michael Howard had described the poll tax as the fairest form of taxation. However, in 2003 as Conservative leader, Michael Howard said:
"Obviously the poll tax was a mistake and I have apologised for it."
The only real surprise was not the apology itself but the fact that it took so long.
If, after this debate, Mr Brown would like a little synopsis of who was to blame for the poll tax, I will give him such a synopsis in the members' lounge. He really needs his memory jogged.
A clear majority in our nation was against the poll tax. Ultimately, it was abolished. It is gone, but not forgotten—or forgiven. It was replaced by another form of taxation that, on one level, bore an important similarity: when the council tax was introduced, it also took no account of people's ability to pay. That structural flaw in the poll tax
In my maiden speech in the chamber, during the wealthier and fairer debate, I said that I believed that there was a clear majority in Scotland in favour of scrapping the council tax. We must strive to find such a majority in this chamber too—a majority that cuts across traditional party lines to serve our people.
Earlier this year in Aviemore, the UK Lib Dem leader, Ming Campbell, said:
"Our principle is simple. People should pay taxes in accordance with their ability to do so. Those who earn less should pay less."
On the SNP benches and in the Government, we agree with those sentiments. I am sure that others will agree too. There will also be others who believe in taking 500,000 pensioners out of the local taxation system and stopping them living in fear of the annual council tax bills that they cannot pay coming through their doors.
Tackling poverty is high on the political agenda, and rightly so. A number of points have been made recently about how best to define poverty. Definitions have included when a parent cannot afford a bike for a child, or a school trip, or when parents cannot take their children on a family holiday. Different people will put the poverty bar at different levels, but no matter where it is placed, a tax on earned income will ensure that people who earn less will pay less—not more as happens at the moment. In a fair and just society, that is surely right. That basic principle, put into the form of a local income tax, will benefit not only our pensioners, but nine out of the 10 income decile groups in society—and the 10th group will pay only moderately more.
Members will remember Michael Howard's belated apology in 2003. I would not like members on the Labour or Conservative benches to have to make a similar apology for the council tax in five or 10 years' time. This Parliament has the power to abolish the council tax. Members who fail to abolish it will not be forgiven by the people of Scotland.
In his statement to Parliament on 23 May, the First Minister confirmed that:
"It is still the Government's objective to abolish the hated and oppressive council tax."—[Official Report, 23 May 2007; c 68.]
As we have since heard, it is the intention of the new Executive to replace it with that incredibly
We have heard arguments about ability to pay. I would say first that 80 per cent of Government finance comes from general taxation and income tax.
I am sorry; I have only four minutes.
When we consider a policy for local income tax, we have to ask who will be liable to pay it. In working families, couples are already burdened with mortgage repayments, the expenses of bringing up a family, and possibly a student loan. Those families will be expected to stump up, as will young people who are starting their employment and who are living at home with their parents, saving for a place of their own. We must also consider pensioners who pay income tax because they have savings, or because they have invested in contributing to their pensions. After listening to Mr Swinney, I am not quite sure of the SNP's position, but I think that the tax man will be coming for pensioners too.
The arguments against replacing the council tax with a local income tax were well rehearsed during the election campaign. The Executive will find it difficult to get its proposed legislation through this Parliament. A lot will depend on the position of the Greens, who will demonstrate whether or not they have been bought and sold for the price of the convenership of the Transport, Infrastructure and Climate Change Committee.
I want to examine the Executive's interim position. As Margo MacDonald said, the Executive has pledged in the short term to freeze council tax. In reply to my written parliamentary question S3W-507—and I apologise if reading that number out makes me sound a bit like Stewart Stevenson in a previous life—Mr Swinney said that the Executive intended to freeze council tax at this year's level. However, in reply to S3W-508 he was unable to say how much additional resource would be made available to Dumfries and Galloway Council to enable it to freeze council tax.
I should perhaps warn Mr Swinney that Dumfries and Galloway Council is already arguing that, to meet financial pressures, it needs an additional £3.8 million next year and a further £3.5 million in the year after that. As did the Conservatives, I ask whether it is better to use resources to freeze
In 2003, a report from Age Concern estimated that there were 565,000 pensioner households throughout Scotland, of which almost 60 per cent were single-pensioner households. I cannot go through all the arguments in one minute, but I estimate that, if we were to freeze council tax, it would cost something like £45 million in the first year, rising to something like £91 million in 2009-10. However, £91 million would more than cover the cost of halving water rates for pensioner households in that year. So, simply by redirecting the resource that would be used to freeze council tax, we would be able to offer pensioners a reduction by half in their water rates in two years' time.
I have also done the calculation on the Tories' proposals and I came out with £230 million, so I agree with them on that.
It would be cheaper to consider our proposals in the short term and I urge the Executive to do so.
We now move to the closing speeches. I apologise to those members whom I was not able to call.
I am delighted to close on the Green amendment.
I reassure Elaine Murray that I remain entirely my own man. Most members are wrong pretty much all the time, and I will be entirely even handed with my constructive criticism.
It might have been convenient and happy for the Parliament and all political parties if the electorate, in their wisdom, had given us a Parliament that had a clear view on the council tax. However, the arithmetic is on a knife edge: half the Parliament wants a local income tax, but half believes that some form of property tax is an important principle and must remain.
Let us consider the arguments that we have heard on local income tax. First, I will examine its relationship to the ability to pay. The idea of a progressive taxation system in which what one pays relates to what one has is clearly an important principle. However, it is not limited to salaries and can relate to any form of taxation. It is an important principle across the taxation system as a whole, not in relation to one, specific tax.
It seemed to me that Tavish Scott's arguments on the ability to pay could almost be used against resource taxes, which the Liberal Democrats
The other argument for a local income tax is the perception of unfairness that surrounds the council tax—Bob Doris referred to detestation and anger. The sense of unfairness has increased in proportion to the steady increase in council tax levels. We need to take account of that. We need to respond to that sense and recognise that, just as there is no majority in the Parliament for a local income tax, there is no majority for the status quo either.
However, those arguments can be made for other forms of tax, not only council tax or income tax. Let us examine the arguments for some form of property tax. One of the Burt review's conclusions was:
"Property taxes are better suited for use as a local tax than income tax. They are difficult to avoid and suitable for collection locally. They are certain ... they are not susceptible to sudden reductions."
Des McNulty argued that a genuinely fair system takes account of assets and income. People should remember that both are forms of wealth. Reducing the scope of the taxation system as a whole by taking asset wealth out of the equation altogether would only make it easier for people who so desire to avoid paying tax. Even without that deliberate avoidance, under a salary tax—that is what we are talking about with a local income tax—many of the very wealthiest would pay nothing at all.
Robin Harper has talked at length about the benefits of land value tax as not only a fairer but an environmentally and economically better form of local taxation. It would not only help to bring disused land back into economic use and stimulate the economy, but would also help to dampen down some of the problems with the housing market. By contrast, removing any form of property tax would be an inflationary measure.
I recall to members' minds the motion for which the Parliament voted in 2003, agreeing to further investigation into
"the contribution that land value taxation could make to the cultural, economic, environmental and democratic renaissance of Scotland."
The Parliament voted for that. The Scottish National Party voted for it and, if I am to be open to the arguments that it is making today, I need to hear some willingness from the SNP Government to act on that commitment and undertake that investigation.
This debate on local income tax is the preliminary joust in one of the defining debates of the Parliament. Derek Brownlee was right to say that it is about the direction of travel. It is a decision between the two alternatives: tinkering with the council tax and a fundamental reform that brings about a local income tax. Whatever the merits of the Greens' proposal, it does not have the broad support of the Parliament and is not the central point of the debate.
Some good speeches have been made. Charlie Gordon made an extremely good point about the constitutional status of local government, with which I have much sympathy. Keith Brown made a good, forensic analysis of some of the issues that lie behind the debate. Patrick Harvie also made a number of good points that must be brought on board, answered and dealt with as the argument is developed.
However, at the heart of the debate is a substantial issue of principle that should prevail in this Parliament: the idea that the citizen in modern Scotland should be taxed for the necessary and beneficial purposes of government according to his or her ability to pay. It is a simple principle, a moral imperative and a powerful driver of reform, which I urge the Parliament to back. That is not to say that there should be no other forms of tax, but the principle holds true for the principal form of local government taxation.
Any taxation system or reform of it has winners and losers. No one likes paying tax—Elaine Murray almost made an argument for nobody paying any tax at all—and no one likes to pay more tax than they have before but, if the Government gets it right, 60 to 70 per cent of local tax payers in our country will be better off. They are the people who pay the highest proportion of their incomes in tax—people further down the income ladder. Many of them are pensioners or young families that are setting out and many of them are caught by the poverty trap in a country where the gap between rich and poor has widened since Tony Blair and new Labour came to power.
No. I will make a little progress, if I may.
Local income tax also satisfies another criterion of a good tax: it will be a buoyant source of funding for local government. Keith Brown also made that extremely important point. A local income tax will avoid the horrors of revaluation, which is a necessary aspect of the council tax and has been avoided in Scotland only by the previous Executive's wise decision to postpone it.
Nevertheless, it will have to happen at some point under the current system.
The debate also shows the true nature of the philosophy and political beliefs of Labour and the Conservative party. I challenge the Labour Party to demonstrate whether there is the thickness of a sheet of paper between its position and Tory attitudes to the council tax.
Let us remember where we came from. The council tax is the son of the poll tax, which was brought in with the aim of saving the skins of the then Conservative Government, which had suffered horrendous by-election losses to the Liberal Democrats. It had also just witnessed a tearful Margaret Thatcher's declaration, which was repeated on television recently:
"We are now leaving Downing Street for the last time."
No amount of bluster from the Conservatives and no amount of crocodile tears or cover stories about their concern for pensioners can disguise the fact that the council tax is a fundamentally unfair tax that bears heaviest on the poor. Indeed, John Major had to chuck bucketloads of VAT at it to make it even half tolerable.
The most revealing thing is Labour's backing for the council tax. If ever there was a litmus test of the true nature of new Labour, it must be its backing for the Tory council tax. It is hard to imagine the founding fathers of socialism rejecting a reform that is based on ability to pay and making a nurse, care worker, postman, train conductor or call centre worker pay more, so that Brian Soutar, Bernie Ecclestone, Paul Drayson or the Duke of Buccleuch can pay less.
This is an important debate. It is vital to scrutinise the details, the rates, the accountability to local councils and the economic effects of the proposals. Margo MacDonald made some valid points in that connection. It is also important to build a consensus for major tax reform. The vote today will cross a major rubicon. For the first time, the Parliament will support in principle a proper, appropriate and fair alternative to the council tax with some prospect of relief for many hard-pressed taxpayers on modest incomes.
I urge members to support the Liberal Democrat amendment.
To a degree, the debate has been predictable, as it deals with a subject that was comprehensively debated in the course of the recent election campaign. There is nothing wrong with that, as the principles that underlie the debate have not changed. What has changed is that we are now debating the subject in the context of a new Parliament and a new
In the absence of any greater clarity, we are entitled to assume that the Executive wishes to pursue the prospectus on which it fought the election—that is, a nationally imposed 3p local income tax rate. Of course, that is inadequate for funding local government services. Furthermore, it is not local. Charlie Gordon, in an excellent speech, made it clear just how fundamental that flaw is.
"For good local democracy it is vital that there is a strong and identifiable relationship between the local electorate, local politicians, and their ability to determine the local rate of taxation."
That was a quote not from Charlie Gordon, but from the SNP's submission to the Burt review. It was true then, and it is true today. It was convenient for the SNP then, but it is inconvenient for the SNP today.
Mr Tavish Scott gave us fair notice that the Liberal Democrats will work with the Executive on this matter. Mr Scott should tell us today if they are prepared to sell the principle of local accountability as part of the negotiations. As well as applied taxation, direct and indirect taxation, taxation on earned and unearned income and taxation on goods and services, a tax based on property should be part of the whole mix. I point out to Robert Brown that it was one of the principles of the founders of socialism that wealth and property, and indeed unearned income, should be subject to taxation.
A property tax is easy to collect and hard to avoid. It provides a stable source of revenue for local government.
Does that principle extend to the super-rich venture capitalists who were featured on "Newsnight" last night, who pay an absolute minimum of tax under a Labour regime in London?
Those are the very people who would pay nothing under the proposals on which Keith Brown's party fought the election.
A property tax is fair if it is properly mitigated through a system of discounts and benefits. Many members have repeated the mantra that a local income tax is based on the ability to pay. It is not as simple as that. It is based on the ability to earn.
It takes no account of age, as council tax does. It takes no account of caring responsibilities, as council tax does. It takes no account of disability, as council tax does. It takes no account of responsibilities for children, as council tax does.
What about student nurses? The Executive trumpeted a 2.5 per cent increase in their pay packets, but it wants to take 3 per cent out. Student nurses currently pay no council tax; under the Executive's proposals, they would pay local income tax. About 450,000 Scottish pensioners pay income tax. Under a local income tax, they will be paying more, and it is dishonest to pretend otherwise.
We can make council tax fairer, and we should. If we really want to help pensioners, Derek Brownlee, Elaine Murray and even Alex Neil have each suggested a way. We can improve local tax. We can do so without crippling local government, without stripping accountability from councillors and without making Scotland the highest-taxed part of the United Kingdom.
I agree with Iain Gray that Charlie Gordon made an excellent speech. This Administration believes much more than the previous Administration did in the significance of the role of local government in our country.
Labour members can jeer as usual, but they should talk to local authority leaders, who feel that the previous Administration ring fenced money and tied the hands of local government, using it not as part of the democratic fabric of our society but as a delivery agent that was dictated to by ministers. This Government will not follow the same route. Mr Gordon should be assured that the minister takes a supportive approach to local government. We intend to build on the powers and responsibilities of local authorities.
I accept Mr Swinney's point. I believe that he thinks that the accountability of local government is important. Will he therefore admit that the reason for suggesting a nationally imposed 3p rate is the realisation, part way through an election campaign, that the rate would in fact have to be levied at a level somewhere between 6.5p and 7p, and that the Executive's
It is a matter of administrative efficiency to ensure that a system can be up and running to tackle some of the legitimate issues that Margo MacDonald raised in her speech. The policy was not announced during the election; it was announced well before the election campaign that that was exactly what we were going to do.
Robert Brown made an excellent speech. He rightly characterised the debate as the "preliminary joust" on a big issue for the Parliament. It is important that we do not close the door on the idea of reform. That is the choice that we all have today. It is a question of whether we leave the door open to the reform of local authority taxation or accept the position of the Conservatives and the Labour Party that we should slam that door shut. I appeal to Parliament to keep that door open, so that we can consider the issues in greater detail.
That brings me to the points that—
I am just about to address the points that Margo MacDonald made. I am terribly sorry that she did not receive a reply from Alex Salmond to her letter, but so many of the points that she raised are matters on which we published information and commentary before the election campaign. They are, however, material to the consideration of this issue, and they will be the subject of the Government's consultation later in the year, when we set out our opinions on those points.
I have another question. Keith Brown said that 60 to 70 per cent of people would benefit from the Executive's proposals. First, what if ministers are wrong? Secondly, what happens to the 30 per cent? By how much would they lose?
The Liberal Democrats' estimates were that, under their proposals, 70 per cent would benefit and 30 per cent would be worse off. As was validated by the Institute of Fiscal Studies, 90 per cent of Scots would benefit from our proposals. That clearly must be examined in further detail.
Patrick Harvie raised a point about land value taxation. I return to my original point in relation to Mr Brownlee's comments. The opportunity for us to give any consideration to land value taxation depends on our ability to keep open the door of the debate on local taxation reform. The Conservatives and the Labour Party want to close the door on the debate on reform. We want to continue consideration of the issues. We will advance our arguments for local income tax. I very
I am happy for further consideration to be given to the motion that the Parliament agreed to in January 2003. The Government will consider all the suggestions that have been made, including what Elaine Murray said about water charges. Her proposal is not the position of the Government just now, but we will consider it in the spirit of consensus and open discussion.
The points that David McLetchie raised about the Burt review were fascinating. He has reverted to his old days as a lawyer. He now believes that a higher standard of proof should be required for a new proposal, unlike for the atrocious and unfair system that is in place now. Let us have a bit of consistency. The Burt review trashed the council tax, and it should not be used as a fig leaf to defend an indefensible position.
The bottom line is that the local income tax sums do not add up. Several months ago, on the campaign trail, I heard Liberal Democrat and SNP candidates saying that 90 per cent of people would be better off under this system.
A week later, in a different hustings, it was 80 per cent. Then it became 70 per cent, as Mr Rumbles is now saying. Today, we heard from Keith Brown that 60 per cent of people would probably be better off. I wonder where we will end up in a few months' time—probably much closer to the real figure.
The problem that the SNP and the Liberal Democrats have had today—as they have had in every hustings that I have ever been to—is that although they do not like the council tax, which they want to scrap, they have no clear idea of what to replace it with.
All the speakers from those parties have been extremely light on detail. Mr Scott may say, from a sedentary position, that my suggestion is ridiculous, but, in his speech, he spent more time talking about the poll tax than he did about the local income tax.
As Derek Brownlee said, we do not think that the council tax is perfect, but we think that it is a lot better—
The member did not answer my question about which Prime Minister abolished the poll tax, so he should not interject now.
Mr Brownlee also pointed out that we have a clear and costed policy to help our pensioners, who suffer most under the current council tax. We are calling for a 50 per cent discount for them, which could easily be incorporated by this Government now and would meet with broad support from members across the chamber, including Alex Neil, as we heard earlier.
Mr Swinney's arguments against our proposal do not add up. He does not like the proposal because some rich pensioners would benefit. However, in almost the same breath, he says that we are going to have a two-year council tax freeze across the board. Presumably, that will not discriminate between rich, poor and anyone else.
A local income tax would be a step backwards for this country. It is a tax on hard-working families. Most families in this country would be worse off under the new system, as would just about every household in which two or more people work. A nurse and a police officer living together would be around £500 or £600 worse off a year. That is not fair.
Do those figures refer to Mr Swinney's proposals or to a general example of a local income tax?
Those figures are based on the Burt review, which talks about a rate of 6.5p in the pound. We are being sold a pup. It is convenient for the SNP to say that the rate will be 3 per cent but, in fact, it has the ability to vary the tartan tax by 3 per cent quite easily. We do not believe the SNP's figures. If the rate is 3 per cent, there will be a shortfall of at least £1 billion a year. Where will the money come from to make up that shortfall? Does the SNP have a plan B?
It was interesting to hear Robert Brown say, "We are not saying that local income tax is the only tax that we should have for local government." Is that a tacit admission that Robert Brown knows that the sums do not stack up and that that means that something else must be done?
That is not what I said. I said that there is a basket of other taxes and that we did not rule out other forms of taxation. VAT and so on obviously exist.
But what the member specifically said was that he did not rule out other taxes at a local level.
The biggest weakness in the position of the Liberal Democrats and the SNP is that they completely ignore the larger picture of local government finance. They ignore what councillors are saying, which is—as Charlie Gordon pointed
The position of the Liberal Democrats and the SNP also ignores the wishes of business. The proposal would put an additional burden of around £30 million on business every year. On the one hand, we have Jim Mather—who presumably was not allowed to speak in this debate because of his position on income tax—cutting red tape for businesses and, on the other hand, we have John Swinney tying up those businesses with yellow tape. We do not need that extra burden on business when we are trying to grow our economy.
The local income tax would also hit the self-employed, students, student nurses, pensioners who have saved hard for their retirement, hard-working families and any number of other people.
People who rob Peter to pay Paul can always count on the support of Paul. However, under the proposal, it would be not only Peter who would lose out, but students, business and hard-working families. That is why the Conservatives are saying no to the local income tax. Not here, not now, not at all.