Monday, February 21, 2005

Council Tax Announcement

I wonder if on May 6th I will look back on today and identify it as the one which helped me win. Today's announcement on Council Tax relief for pensioners is a sure-fire winner. I have visions of a LibDem fox being shot. Not only will it be popular among a large proportion of the electorate, it is the right thing to do. Pensioners have been hit hard by the fact that Council Tax has doubled under Labour and this new policy will be of enormnous help to them. Labour are already suggesting we will abolish the £200 winter fuel payment. We won't. Michael Howard made that crystal clear on 5 Live this morning.

Today has been spent in the Cromer office and I now have to get down to writing my speech for Friday. It's on Restoring Integrity in Public Life: Do we get the Politicians we Deserve? We also have our Association AGM on Thursday so I also have to do a speech for that. And with the by-election tomorrow and Wednesday at work I'm not exactly overburdened with time to write two speeches!

20 comments:

Tom said...

Iain, under the Lib Dem Local Income Tax plan, an over 75 with a £10,000 income per year pays only £114 p.a. If you earn below £10k you will pay even less. If your income is £37k then you pay £1000. Not fair?

Almost every home will be better off- and only the richer people will pay more.

Iain, what about for low income families- will they pay less council tax?

Anonymous said...

Iain
When you write about integrity in politics write about the following:
1 Prospective Candidates who cannot give straight answers to straight questions. [Read your Blog].
2 Prospective Prime Ministers who make promises to pensioners that they cannot keep because the savings that they intend to fund them from are fantasy savings.
3 Prospective Candidates who don't understand, and therefore distort the truth, about the urgent need to abolish the unfair Council Tax by replacing it with a fairer income tax system based on peoples willingness to pay. A tax change that will benefit all those on low /middle incomes as well as pensioners.
4 Tell them about Kennedy's integrity in his stand on Iraq and Howards compliance with Tony Blaire for short term political gain.
Need any more help?

DM Andy said...

Tom, the problem with the local income tax is that any household with 2+ earners will pay more. I'm in a Band B flat with a flatmate, that's £900/year council tax, compared to about £1500/year between us local income tax (if a local income tax brings in the same money as council tax). LIT might be more fair, but it's a political law that winners in tax changes are never as grateful as the losers are angry.

Iain, an unfortunate side-effect of the plan is to increase local councils reliance on the central grant which will tend to inflate council tax rises even more, what's are the Tories going to do to address that.

Iain Dale said...

Tom - rubbish. Even Charles Kennedy says only 70% will be better off, although I would dispute that.

Remenber Lincoln's saying "You don't make the poor rich by making the rich poor"?

LibDems would do well to remember that as they try to suck the middle classes dry. And the middle classes aren't even rich.

Try telling an average working couple in North Walsham that they're rich and they should pay an extra £646 a year in tax. I think they'd rightly tell you where to go.

Low income families already get benefits to pay for much if not all council tax, so that's a false point.

ANONYMOUS (Robb, I presume) - take a hike

DM ANDY - point well made, and it illustrates what I said above. I agree about central reliance, but the LibDem Local Income Tax has the same effect. It isn't really local as it is collected and doled out centrally. Only 25% of local government finance is raised locally anyway. Some people advocate going the whole hog and abolishing all forms of local taxation and bunging it all on income tax or VAT. I think, in the words of Sir Humphrey, that would be "courageous"!!! And before anyone starts quizzing me on this, no I am not advocating it! Although...no, stop it!

DM Andy said...

If all local council income is determined by central government then what's the point of local government. It's my opinion that the closer decisions are made to the people affected by them the better.

Shouldn't more local council income be collected from the people in that authority. All too often, council tax rises are excused by "central government won't give us enough money". If councils received their income from local taxation then there would only be one lot of people to blame for a disproportionate rise, the councillors themselves.

Neil said...

Iain - for the 'average working couple' in the constituency to end up paying £646 a year more, they would have to be on a combined income of over £50,000.

Are you sure you are not confusing your figures and adding together the average full time male salary with the average full time female salary which is actually hugley more than the income of an 'average working couple'?

Coincidentally, the Conservatives seem to have made the same mistake in many other constituencies.

Luckily the Lib Dems got their figures checked by CIPFA - an independent body - just to mae sure they had done their sums properly.

Liam said...

Neil - Iain and I had this dispute a few months ago and he didn't dispute your very sensible point.

Why he is persisting with his dodgy numbers I do not know (well, I can guess!)

DM Andy said...

Iain may not want to challenge your figures but I shall.

If £37,000 p.a equals £1,000 local income tax and £10,000 p.a. equals £114 local income tax then (as long as there's one rate) that means that the local income tax allowance is set at £6,526 and the tax rate at 3.28%.

Income Tax as a total brings in £127 billion. Source http://www.hm-treasury.gov.uk/media/92B/AC/pbr04_chap01_284.pdf
(the piechart on page 12). Income Tax allowance is set at £4,745 and if we say that there are 35 million income tax payers then the average income tax payer earns £21,239, paying £3,629 income tax.

If we use the same average figure for local income tax payers then the local income tax will only bring in £16.9 billion. which is much less than the £24 billion that council tax currently raises.

The only figure I've had to guess at is the number of taxpayers, but that doesn't change the net receipts as much as you would think, more taxpayers would use more allowances and bring the total take down slightly, 40 million taxpayers would bring in £16.6 billion, 30 million would pay £17.2 billion.

I haven't detailed all my calculations, but would be happy to clarify anything if you want me to. You don't happen to have the report from CIPFA would you, so I can check that my assumptions are the same as theirs.

Neil said...

I don't understand how you can possibly calculate these figures without having a lot more details about the number of taxpayers at different levels of income etc.

Even on your own figures, however, and if you assumed that the 'average working couple' is made up of two average taxpayers (which it isn't) they would have a combined income of around £43,000, not the £50,000 the Tory figures are based on.

DM Andy said...

Neil, granted that the exact structure of income tax would make a difference, I have ignored the 40% band entirely, but that makes it worse for the Lib Dems as the addition of the 40% band would make the average taxpayer figure less and therefore the take from local income tax less.

the biggest problem with the LIT plan is that at the most it only brings in £17b/year and council tax currently brings in £24b/year. That's a gap of at least £7b/year. Either the rate has to increased by around 40%, or the tax threshold has to be decreased and the rate increased by a smaller amount, or the shortfall will have to be funded from general taxation, maybe out of this 50% tax rate that is going to fund everything else.

Anonymous said...

Hi
You guys can play around with figures until the cows come home, but the basic truth is that no taxation can ever ignore the ability to pay. Only the income tax mechanism ensures that basic principle [fundamental to a civilised society] Remember guys, the mechanism of choice does not apply with taxation. You have to pay whether you can afford it or not. History is littered with rebellions and civil disruptions when that principle was ignored. [Sherrif of Nottingham / Mrs Thatcher]. Can you imagine the same amount of income tax being levied on the £11,000 farm worker as on the £100,000 a year bookshop owner? That would be laughable wouldn't it. ...? So what is different about Council Tax - the principles are exactly the same. Can you answer Lady F ? Iain seems to have gone to ground since the By election result - is he to be deselected? I hope not I'd miss his slightly weird humour.
Robb
Robb

DM Andy said...

Actually, I have made an error, Income Tax is levied across the UK, whereas Council Tax is not levied in Scotland. So reduce the Income tax figure above to an estimated £120b/year.

An easier way to work out the figures is to say that if the Local Income Tax is to bring in 20% of the revenue that Income Tax does, then the rate must be set at 20% that of Income Tax.

To avoid any arguments about the numbers of taxpayers in each band, I'll say that the bands are exactly the same. Therefore:

£0-£4,745 = 0% rate
£4,745-£6,765 = 2% rate
£6,765-£36,145 = 4.4% rate
£36,145+ = 8% rate

Given that set of rates, your £10k/year person will pay £183/year not £114 and your £37k/year person will pay £1,402/year instead of £1,000/year

So, Neil, I simply don't believe your figures.

Liam said...

Andy - I believe this is the CIPFA report: http://www.local.odpm.gov.uk/finance/balance/boflit.pdf

The relevant section is section 2 - I think the core of the dispute is over how broadly based the tax is and your confusion arises from relying on quite narrowly based PAYE figures.

You are certainly right that there are winners and losers from any change like this. Interestingly, CIPFA's analysis (albeit broad brush) is that LIT would be tax neutral for most couples who both work and have children - which will please Lady Finchley on another thread!

DM Andy said...

Thanks James,

It'll take some time to consider it, very sadly I find such things interesting.

However some quick points:

Overview 0.15 (page 9)
"In general, the effect on families with children where both parents were
earners would be neutral."
I can understand that, families tend to live in larger houses than their income would suggest, therefore the average 2-earner family would live in a higher than average band property.

However, backing up my stats are
also on page 9 "The effective tax rate for individuals on average incomes would rise from
15.5% to 17.9% if LIT replaced Council Tax."

and then the table at the top of page 9 gives the range of LIT rates for different types of councils.

Inner London 3.2% to 4.5% (average 3.9%)
Outer London 3.8% to 4.9% (average 4.4%)
Metropolitan Areas 3.6% to 5.3% (average 4.3%)
Unitary Areas 3.7% to 5.3% (average 4.3%)
Other Shire Areas 3.4% to 6.5% (average 4.6%)

I think that is pretty close to my 4.4% rate estimate earlier.

What the Lib Dems seem to have done is taken the lowest limit of the range that CIPFA have provided and suggested that to be representative of the nation.

Liam said...

I think what the Lib Dems have done is cast income more widely than is covered by PAYE - there are many ways to measure it of course.

You also have to be a bit careful in thinking about the impact on average employed people. Although there is no end in site right now, actually I expect to only spend half to two thirds of my life working. Although I will have income as a pensioner, it will be lower (and I will also have somewhat lower outgoings - particularly no mortgage, I hope).

The conclusion I think we would agree on is that most people would be better off if LIT is introduced (because of the long tail at the upper end of the income distribution) but some people would be worse off - and some would be a lot worse off. Whether this would be fairer or not is genuinely interesting - I have made my view on it clear but that does not mean there is no legitimate debate. For either side to draw examples which aren't really representative of typical households and fail to reflect the position of people over a lifetime is a bit naughty - but I guess that is politics.

Anyway, interesting discussing it with you Andy.

Neil said...

dm andy - I haven't provided any figures - I have simply disputed Iain's figures for an 'average working couple' for the reasons I set out.

It is clear to me that the Lib Dems proposals have to raise the same total amount of money as Council Tax does.

As I understand it the key difference between the Lib Dem proposal and Council Tax is that the burden of taxation will be reduced for those on below average incomes and raised on those on above average incomes.

Because, as James has pointed out, the income curve in the UK rises sharply at higher incomes, this means a large majority of people will be better off.

Think of it this way: There are 100 people in a room. Between them they have an income of 2 million ukp, an average income of 20K ukp. They all live in similar houses.

The local council needs 80,000 ukp a year in tax to pay for local services.

Under Council Tax they would each pay 800 ukp.

However 80 of them earn 10,000 ukp and 20 of them earn 60,000 ukp.

Under a Local Income Tax (assuming, for simplicity's sake no allowances) the 80 would pay 400 ukp each and the 20 would pay 2400 each.

Therefore 80% of people would be a lot better off, but the same money is raised overall.

I am happy to debate whether this is fairer, but the maths of it definitely works.

DM Andy said...

Oh, I consider a local income tax to be a fairer system than we have now. I would prefer some kind of property tax based on purchase price which could also act as some kind of brake on house price inflation but that's a debate for another day.

The issue that I have with the Lib Dems is that the publicised "you would have to earn £37,000 p.a. before you pay £1,000 local income tax" seems to be a dishonest claim. Now I've seen the CIPFA report, the Lib Dems have taken the CIPFA estimate of the council tax for the lowest charging council in England and extrapolated that to the rest of the country.

Most people will look at the local taxation policies and try to figure out how it will effect them. The Lib Dems should be confident enough to be open about its cost and allow voters to make up their own mind.

DM Andy said...

By the way, Neil, apologies, the figures I was refering to was Tom's in the opening comment not from yourself.

Neil said...

dm andy - fair enough

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