Local tax and benefits- (28.03.04)

The debate other whether the council tax is a fail method for local authority financing seems to come down to two choices, a tax based on property or a tax based on income. The third alternative was a tax based on individuals, a poll tax, which no sane politician in the UK would wish to touch with a bargepole after the last attempt to introduce one.

Fundamentally there is nothing wrong from a taxation point of view with the current council tax system. Admittedly, more emphasis and judgement on the relative efficiency of different local authorities would be helpful, but a property based tax would seem to most closely match the beneficiaries of the services without the taxation becoming regressive.

A local income tax on the other hand would certainly prove to be more expensive to collect, easier to avoid for the rich and politically far more damaging to local councils. For instance, should taxation rates vary between local authorities. If so then this could have a dramatic effect on local economies, particularly in poor areas which may seem penal local income tax rates for the middle earners. If taxation rates are averaged on a national basis then loss of democratic control over what councils spend is likely to encourage them to spend more than they currently do. Hard choices about spending priorities currently have scrutiny at the local level.

If there is a problem with the existing council tax it lies with the benefit system. Linking pensions to a price index that reflects the balance of pensioner spending would assist with fuel poverty (where fuel prices make up a much larger proportion of income than allowed for in RPI) as well as with council tax. Evidence for this is that it is not the poorest pensioners on benefits who appear to be struggling with the council tax, but middle income pensioners who retain larger properties than they currently need.