Wednesday, May 12, 2004


The LibDems appear to have conveniently forgotten their pledge to knock £100 off council tax. Indeed, when the Chancellor recently proposed the same thing they described it as 'tinkering'. Must have learnt that from Claudio Ranieri. The LibDems are basing their whole local government campaign on a pledge to axe council tax and introduce local income tax. Methinks this might not be the vote winner they imagine. I wonder what the young couple in North Walsham will make of it, who earn £35,000 a year between them and will face a tax rise of more than £650. Not please I should think. They'll be even less pleased when I tell them about LibDem plans to put VAT on new houses. The solution to the council tax problem is to restore central government funding to its proper levels and actually look at some of the functions local councils are carrying out. There is nothing wrong with the principle of a property based tax. It's only in the last few years that people have found it unacceptable and that's because of the levels it has reached. If Labour hadn't cyphoned off money from Norfolk and given it to their Labour cronies in the North things wouldn't have reached this stage. I've got our local government finance spokesman, David Cameron, coming up on May 20th.


Will said...

Care to post your calculations for the £650 rise for the couple you chose? My partner and I earn roughly that amount and we would be better off under local income tax.

If the rise is because the local councils covering North Walsham have set a low council tax level, then they would also to set a low local income tax level. (And if they didn't, the local electorate should show their dissatisfaction!)

Will said...

I should add that the LibDem's "whole local government campaign" is not based solely around axing the unfair council tax. That is one of the principal issues being promoted nationally but, as these are local elections, in each area we will obviously be talking about the issues that effect people locally. These vary from place to place - if they didn't, there would be little point having local councils!

Iain Dale said...

Will, it's 1am and I'm too knackered to root out these figures now (having just driven back to Swanton Abbott from Buckinghamshire, where I was hosting one of my Ann Wiidecombe evenings!), but I will do so over the next couple of days and post them on here. From memory they are based on income tax having to rise by 3.9p, which means that a couple on a joint income of more than £35,000 would be adversely affected. Watch this space.

Will said...

Thanks, Iain, I look forward to it!

Iain Dale said...

Will, Here's how it is calculated - the figure is based on male and female average earnings.

Under the Liberal Democrats’ proposals, council tax would be replaced with a local income tax (LIT). The average rate of local income tax would be 3.8% (in 2004-05), but would vary from council to council. The tax would be levied on all income from £4,745 and £100,000 – it would not just be on the basic rate (based from information in: Liberal Democrats, Scrap council tax, Briefing paper, January 2004).

Local income tax would be higher in councils which currently charge above-average council taxes, as the Liberal Democrats have said - ‘it may be that areas which currently have very high council taxes will have a slightly higher local income tax rate’ (source: Liberal Democrats, Labour’s unfair council tax: the facts, September 2003).

Local income tax would make many councils more dependent on Whitehall funding not less, since incomes vary across the country hugely. As the Chartered Institute of Public Finance and Accountancy have warned, ‘LIT would… place greater demands on the need for resources equalisation between areas’ (source: CIPFA, Reviewing the case for a local income tax, 4 March 2004, p.iii, p.4).

Local figures & methodology

Below, we have calculated the local income tax rate that would have to be charged to raise the same amount of money as council tax currently does, assuming an average rate of local income tax of 3.8%. The total tax bill for an average couple is then calculated (assuming 2004-05 tax system, with one man and one woman each on estimated average full time earnings for 2004-05, of £29,890 a year and £21,635 a year respectively).

‘Average council tax’ is the average bill actually paid in practice for an average household in the local authority area (it is different from the ‘average Band D council tax’ which is the benchmark used to compare the level of council tax after funding from central government).

North Norfolk £991 3.9 £1,636 +£646

Westbury-on-Trym Lib Dems said...

Hang on there, Iain, that is massively misleading! Why on earth does your analysis assume that the average household has two adults earning the full time average wage? The average household has significantly fewer than two full time earners (0.96 according to the National Statistical Office if you are interested, which would imply a slight reduction in tax in North Norfolk by your figures). Your analysis completely fails to account for pensioners (you may notice there are one or two OAPs in your area!), housewives or househusbands, part-time workers, students and the unemployed. Perhaps you might add "not using misleading statistics" to your integrity pledge?

Iain Dale said...

Will, as you know, many pensioners pay income tax, and so do students. Students pay no council tax at the moment but most of them earn money to pay the fees which Labour have introduced (supported by the LibDems in Scotland!). Of course I am well aware that there are a large number of OAPS in North Norfolk (!) but many of them do actually pay income tax. And I think you underestimate the potential backlash from people on average incomes who will rightly fail to understand why they should be subsidising the services of others who can quite afford to contribute something to pay for their local services. I look forward to the Liberal Democrats explaining to people on the housing estates of North Walsham and Fakenham why they wish to impose this extra burden. Naturally they won't. They will no doubt also fail to explain why they conveninetly forgot to knock £100 off council tax which they pledged to do. The fact is that a local income tax will take away virtually all local accountability and mean that local councils become ever more reliant on central government. There is a worrying trend towards Whitehall dictating what local councils should or shouldn't do. I really think we have got to get sway from that and give local councils back the powers they need to run their councils efficently and economically. And before you say it, I'm aware that my Party didn't cover itself in glory in this area. But Labour have taken centralising control to new limits.

Westbury-on-Trym Lib Dems said...

Iain, I agree that many pensioners and some students pay income tax, but their incomes are (on average) very substantially below the average full time wage. It gets us back to the problem that you took a household with 2 full time earners as your benchmark while the average household has only 0.96 earners. I do not think you can deny that your figures are therefore somewhat misleading.

Incidentally, as a single man (25% of Council Tax) in a modest flat but with an income a little over £50,000, I will be one of those hit quite hard by a move to Local Income Tax. But if that means my grandmother (worked hard and saved for a decent house, but has a very modest pension) and sister (primary school teacher, partner still at university) get a bit of a boost, I am broadly for the Lib Dem proposals. You have every right to take the opposite view - you are a Tory and I suppose it goes with the territory - but it is a bit naughty to use statistical slight of hand. Kennedy on the radio the other day was honest about this - "some will be better off, some worse off, but I think it's fair" to paraphrase.

Westbury-on-Trym Lib Dems said...

I mean "25% off Council Tax" rather than "25% of Council Tax" above. Slightly wishful thinking! Should also have said 0.96 full time earners in the first paragraph.

Iain Dale said...

I think we are going to have to disagree on this. If you change any system there will be winners and losers, and I don't deny there will be people who are better off under a local income tax. But there are not as many as the LibDems are suggesting, and they are hitting people who can't afford it. We're getting to a point where we are overloading people with taxes and no one really knows what they are getting for their money. As a Band D council tax payer in North Norfolk I am paying £1200 a year, but I'd be hard pushed to say I thought I got value for money for it. Council tax is only an issue because it has reached unacceptable levels. I have got our local government finance spokesman David Cameron coming up on Thursday so I shall be getting chapter and verse from him on what we are planning to do to make it more acceptable.

Westbury-on-Trym Lib Dems said...

Perhaps you could put these figures to him:

Average household income in the UK in 2003 was £29,000 (according to the figures I have).

Your hypothetical couple in a Band D house in Fakenham pay £1200 in Council Tax.

To pay the same in Local Income Tax at 3.8%, they would need to have a combined income of just over £41,000 if both use their personal allowances working full or part time, or just under £36,500 with only one person working. This is substantially above the national average in either case.

Perhaps your chap could cast his eye over the figures and explain whether there are any errors and if so exactly what income your Fakenham couple would actually need to have to just break even with Local Income Tax.

Will said...

Your figures assume that the average couple in North Norfolk earn a combined income of over £50k but live in a property rated lower than Band D. It's quite possible that there will be some people in that situation, but I doubt very much that it is the norm. James makes some very valuable points about the true nature of an average household. And how do North Norfolk wages compare with the national average?

By its very nature, and change to a tax regime (unless its an across-the-board cut) will result in some people paying more and some people paying less. This will be as true if you fiddle with council tax itself. You could increase the number of bands, for example, but I'm sure there will then be plenty of example of pensioners in large houses finding themselves charged even more while well off couples in smaller properties pay less.

Now, I must bring you up on your off-hand accusation that the LibDems helped Labour introduce fees in Scotland and that students are having to save up to pay them. What actually happened was that Labour nationally introduced fees (was it with the support of the Tories? I forget) and the LibDems, once the Scottish Executive was formed, achieved the abolition of fees in Scotland. Scottish students there pay no fees and have access to grants. If they are saving up to go to uni, it is to cover living costs, not fees. There is a charge after graduation, but that entirely funds grants for poorer students; fees are paid by the Scottish Executive.