Local Income Tax

A lot of people argue that Council Tax should be replaced by a tax based on ability to pay. By this, they mean some form of Local Income Tax. There are pensioners who have even chosen to go to prison rather than pay their Council Tax.

Local Income Tax is advocated by some people in the Liberal Democrat and Green parties, as well as by pressure groups such as "Is it Fair?", which is supporting the "can't pay - won't pay" OAPs.

Anyone who thinks Local Income Tax is a good idea should take a look at the latest report on the subject.
A Fairer Way: Report by the Local Government Finance Review Committee for Scotland - Section 10: A Local Income Tax

SUMMARY OF THE COMMITTEE'S CONCLUSIONS
"It would not be appropriate to introduce a local income tax. There are five reasons for this.

"First, we have already stated our view that a tax on property as a proxy for wealth should feature as part of the overall basket of taxes in the UK.

"The second reason is that income tax already provides a substantial proportion of UK tax receipts. HMRC estimates that income tax generated 32.8% of its tax receipts in 2005-06. On the assumption that public expenditure is funded in proportion to the yield from the various UK taxes, UK income tax already makes a significant contribution to the Scottish Budget and, in turn, the Scottish Executive's financial support for local government.

"Third, the yield of a local income tax would be unpredictable, because of uncertainty and fluidity in both the number of taxpayers in any local authority area and the level of their taxable income. This would have implications for local authority budgeting processes and for the equalisation of councils' tax bases. The difficulties of unpredictable yield would be more acute for those local authorities with small populations and consequently small tax base.

"Fourth, a local income tax could increase the overall tax burden upon households who are already paying income tax. The burden could fall most heavily upon families with more than one working adult.

"An increase in income tax on earned income would be a disincentive to work. This disincentive may increase as the population of working age shrinks.

"Finally, we doubt the feasibility of introducing a local income tax and, in particular, we are concerned about the additional administrative burdens it might place on taxpayers, employers, local and central government. The practical problems of applying a local income tax to all categories of income are immense in the context of a UK tax system designed to maximise tax deduction at source and to minimise the need for year-end adjustments and universal tax returns.

"We recommend that a local income tax should not be introduced, either as a replacement for council tax or as a supplementary tax."