Financial Times FT.com
COMMENT & ANALYSIS EDITORIAL COMMENT
Tartan taxation Published: September 4 2008 19:28
Alex Salmond is a difficult neighbour. The leader of the independence- seeking Scottish National party and first minister of Scotland announced plans this week to abolish the council tax and replace it with a local income tax. By highlighting the awful state of the UK?s local government system, he has invited a fight with politicians in London and made tensions in the Union impossible to paper over.
Council tax is a locally set levy linked to property values. Since the government has no mechanism for reassessing house prices, however, it relies on old information ? most taxpayers are charged according to what the value of their house was 17 years ago. It is regressive and, thanks to the automation of the UK tax system, it is the only tax that routinely requires most taxpayers to fill in forms and write out cheques. Even by the standards of taxes, council tax is unpopular.
The SNP would replace it with an extra income tax of three pence in the pound. These proposals, however, do so at the cost of worsening the central problem in local government finance: local government does not raise enough itself and is too reliant on central government.
At the moment, if local councils wish to find money for a cut in council tax or for new spending, lobbying to change central government funding formulae is a better bet than controlling local spending. This is unacceptable. There ought to be clear accountability so that the people spending public money can be forced to explain why they raised it. This may mean introducing local powers to control an element of income and sales taxes.
The SNP plans, however, make the situation worse. The proposed local income tax would not be local at all. It would be set, collected and parcelled out by the Edinburgh government. Local government would continue to be overseen by locally elected councillors, but they would become arms of central government. They would have no incentive to control or reduce spending. Abolishing the council tax would be popular, but these plans would damage local government.
Mr Salmond?s plans also have a broader aim; to make Scotland look increasingly different from England, and more like an independent nation. One of his first acts as first minister was to rename what had been called the ?Scottish Executive? the ?Scottish Government?. The local tax issue is the latest foray. It will not be the last. The Labour government championed devolution without apparently considering anyone else running Scotland. Now it must raise its game to deal effectively with a wily opponent.