Council Tax Freeze – it gets worse

Back in November, the kind folk at the better nation blog let me post a guest piece entitled “Council Tax Freeze: a bung to Westminster and to the rich“.

Two things happened since then:

1. Margo Macdonald’s office provided me with more accurate figures for the impact of the freeze in Scotland,
2. Scottish Councils all agreed to freeze council tax for a fifth year.

I can email anyone the official document obtained from the Scottish Government, but here are the key figures, showing the average cash saving as a result of the Council Tax Freeze by income decile for the year 2011/12:

Bottom 10%	2	3	4	5	6	7	8	9	Top 10%
£51	£49	£67	£79	£100	£115	£135	£144	£163	£193

These figures show:

• the top two income deciles (the richest 20% of people in Scotland) benefit more in cash terms from the council tax freeze than the bottom 50%
• the top 10% benefit more in cash terms from the council tax freeze than the bottom 30%
• the top 10% get nearly four times (3.7 in fact) more than the bottom 10%
• the top 50% get more than twice as much cash benefit than the bottom 50%

The total cost of a five year freeze is £1.05 billion. That’s £1.05 billion less spent on services in Scotland over the five years of the freeze.

As I pointed out on the better nation blog, 16% of the council tax freeze savings go to the UK Government. So over 5 years, the UK Government benefits to the tune of £168 million.  Put another way, the Scottish Economy has lost £168 million over the five years.

The remaining £882 million is split amongst the income decile groups according to the ratios in the table above. The following table shows the cost of freezing the council tax for each income decile over five years (in £millions).

Bottom 10%	2	3	4	5	6	7	8	9	Top 10%
41	39	54	64	80	93	109	116	131	155

So to conclude, 5 years of a council tax freeze results in £1.05 billion less spending on public services, but saves taxpayers in Scotland only £882 million, most of which goes to the richest.

Swinney’s £1 billion Council Tax Freeze rip-off

Last night on this blog I suggested that in order for John Swinney to be able to claim, hand on heart, that he is funding councils in Scotland to freeze the council tax he would have to do two things:

1. Maintain the Councils’ share of the total Scottish budget, and
2. Give councils in Scotland an additional £70 million to fund the freeze.

As the SNP quite rightly point out, they are at the UK Government’s mercy to a large extent. If the UK government cuts the Scottish block grant, there’s not much that the SNP Government here in Scotland can do about that.

However, John Swinney may not have control over the size of the cake given to him by George Osborne, but he does get to choose how big a slice each of the spending areas get, (such as health, local authorities, justice, further and higher education etc.)

If John Swinney maintains the Councils’ share of the total Scottish Budget, then there is some truth in his claim that he is simply passing on UK Government cuts. But if he gives councils a reduced share of the Scottish budget then that’s different, and councils can claim to be victims of a double whammy, a mix of UK and Scottish Government cuts.

Add to that the need to provide an additional £70 million to fund the freeze, and from this year’s figures for the Scottish block grant and the total support given to councils we can work out whether the council tax freeze is indeed fully funded.

The table below shows the amounts that would be needed to maintain the councils’ share of the total Scottish Budget and fund the council tax freeze. The second row shows the actual levels of funding John Swinney is making available  to Scottish councils as part of the spending review announcements today.

Year	2012-13	2013-14	2014-15
Total Funding Requirement (m)	£13,621	£14,063	£14,556
Actual #sr11 funding (m)	£13,426	£13,552	£14,024
Surplus/shortfall (m)	-£195	-£511	-£532

That’s a total, eye-watering, shortfall of £1.2 billion over the next three years.

Let’s be absolutely clear, I have taken into account the grave Scottish funding situation that comes as a consequence of the UK Government’s austerity budgetting.

The £1.2 billion shortfall is the amount of money that the SNP has chosen to take away from Scottish councils over the next three years to pay for other priorities.

The council tax freeze is therefore completely unfunded, and will either have to be paid for by cutting council services, or it will be abandoned.

11,765 is the magic number

UPDATE

The numbers are in, Local authorities are getting £11,478 million.

The council tax freeze is unfunded, and will be paid for by cutting council services, fact.

———————————————————

To save you the trouble of having to read too much, I’m going to start with the bottom line.

Tomorrow John Swinney will announce how much money he intends to give councils across Scotland next year, and he will claim that he is giving councils enough to freeze council tax.

If he gives councils any less than £11,765 million in total then he is lying, and what he is actually doing is blackmailing councils into cutting services to pay for a council tax freeze.

The longer version

When the SNP promised to freeze the council tax, they promised that they would fund it, that they would pay councils to freeze the council tax without them having to cut council services.

Last year there was a bit of controversy as to whether the Scottish Government was funding the council tax freeze or not. Some said that since the Scottish Government cut council budgets, they couldn’t claim to be paying for the council tax freeze. The SNP said that since it is the UK Government that decides on the total Scottish budget, John Swinney had no choice but to pass on the Westminster cuts to councils. But despite that, he found an extra £70 million to pay for a council tax freeze.

I’m not interested in that old argument, I’m interested in the spending review decisions that John Swinney will announce tomorrow for next year, 2012-13.

From table 1.01 in last year’s Scottish Budget document we already know that this year the total Scottish allocation form the UK Government is £27,907 million. We know that councils are getting £11,548 million of that (from table 14.01 of the same document), which is equivalent to 41.38% of the total SG allocation from the UK Government.

We know that next year’s allocation is £28,262 million. So if councils are to get the same 41.38% of that then they should get £11,695 million from the Scottish Government. The council tax freeze will cost an extra £70 million on top of that.

Which means that if John Swinney gives Scottish Councils £11,765 million or more for 2012-13, then he can reasonably claim to have:

1. Given councils a proportionate share of the money given to Scotland by the UK Government, and
2. Given councils an extra £70 million to pay for the council tax freeze.

So £11,765 million is the magic number.

Check the budget documents for yourself when they’re published, if councils get a total of £11,765 million or more then John Swinney has kept his promise to fund the council tax freeze for 2012-13. If councils get any less than that, then Mr Swinney has failed, and we can all look forward to more cuts to council services.

My bet is that in an election year for councils, John Swinney will gamble that he can get away with not funding the freeze and that it will happen anyway. After all, the impacts of the extra cuts won’t be felt until after the elections in May next year anyway.

What do you think?

John Masons calls for tax powers Scotland already has

John Mason, an SNP MSP backbencher is calling for an increase to the top rate of income tax at the same time as the Con/Dem UK Government is hinting that they may drop the top rate of tax.

Immediately this raises the issue that under the Calman proposals, and presumably the tax proposals in the Scotland Bill, the Scottish Parliament cannot vary the different rates of tax independently of each other. If the Scottish Parliament wants to put income tax up for higher earners, it will have to to put income tax up for basic rate payers as well.

We then get a debate about whether the SNP should stop complaining and use the limited powers they have, to which they retort they need a handle on more economic levers.

Powers Already Available

But on this issue, the SNP have all the power they need. They could legislate for a local income tax to come into force at the same time as the Scotland Bill powers, 2015.

Once the national income tax powers are devolved, and coupled with a local income tax, the Scottish Parliament will have the ability to vary overall income tax not just by up to 10p in the pound but also in much more creative and distinctive ways than that.

For example, remember when Gordon Brown abolished the 10p tax band? People didn’t like it. But with the devolved part of national income tax plus a local income tax it would be easy to bring back the 10p rate.

Simply reduce national income tax by 10p (in fact this is the default position under the Calman proposals.) Let’s say that under UK income tax, basic rate starts once a person earns more than £8,000. The Scottish Local Income tax could then have a higher “personal allowance” than this, for example starting at £14,000 – the Scottish Government’s ”Living Wage”

That would mean that as well as getting a tax free allowance of £8K, for Scottish workers the first £6000 of taxable income would only attract tax at a rate of 10%. Of course, to balance the tax take more would need to be paid by higher earners, perhaps those earning over £100K, the kind of thing John Mason is calling for.

Whether or not the Scottish Government chose to use this Local Income Tax to replace the council tax would be a debate for another day, but the key issue is that the Calman Powers plus a Local Income Tax would give Scotland near full control over Income Tax rates in Scotland. I believe that’s something the SNP should instinctively aspire to achieve, and would be supported by people in Scotland, especially if it were used to rebalance the impact of the CON/Dem cuts which by and large have hit the poorest hardest.

Official council tax freeze cost – £3billion

I see the Scotsman reported yesterday that the council tax freeze will have cost £3billion by the time of the next election. This is based on figures contained in a Scottish Parliament briefing paper.

During the campaign I blogged on the cost of the council tax freeze - see the last section where I produce the same figures as the Scottish Parliament researchers, but I also point out that £0.5billion of the £3.15 billion cost is money lost to Scotland and swallowed up by the UK government.

I blogged about this on 19 April. If I could work this out, surely one or two journalists could have. (I don’t flatter myself that any read my blog!), and it’s a shame that the media chose not to make the massive cost of the freeze publicly available during the election campaign; might have been handy to know about this before we voted?

The only people I heard speaking out against the freeze were vulnerable people, frightened by the potential impact of the cuts on them, their families and their communities. Guess what, they didn’t get much of a mention either.

However, the SNP Government have a  mandate for a freeze for five years now and so it will happen, sucking billions away from vital public services in the process.

My question is, did people really know what they were voting for?

What could have been – what still could be

I remember when Patrick Harvie called on the Scottish Government to use the tax raising powers we have in Scotland to raise income tax to protect services from brutal cuts.

This was a tough call as the tax powers only apply to basic rate tax, and not the higher rate payed by people earning above £40K or so.

The question was, is it better to put up an imperfect tax (which let’s the richest off the hook) or to implement savage cuts (which fall hardest on the poorest.)

On balance I agreed with Patrick Harvie, and set myself up a twitter account (3pSteve – 3p being the amount we could put on income tax) and started to set up a blog in support of the idea. A couple of people gave the idea their support, including Joyce McMillan writing for the Scotsman. Then we found out we couldn’t use the tax powers, and the idea died a death.

But the whole thing got me thinking, if there had been a couple of Scottish Socialist Party MSPs in the Scottish Parliament (or if the Greens had been willing to support the SNP’s Local Income Tax proposals), there would have been a majority for a Local Income Tax in the Scottish Parliament.

That means we’d have a local income tax by now.

If that had happened, then when the cuts started to come Patrick Harvie, instead of calling for an increase to basic rate income tax, could have found himself calling for an increase to both basic rate and higher rate tax, and perhaps an increase to the tax free personal allowance to offset the impact of the increase on low earners. Or he could have flexed his lefty credentials even further and called for an increase to higher rate only, or perhaps a larger increase for people earning more than £100K.

But unfortunately, the Greens came to idea of progressive taxation a bit too late in the day, and here we are, implementing tory cuts which will be compounded by an expensive council tax freeze.

That’s why not having any SSP MSPs in the Parliament was a missed opportunity. In the absence of any socialists in the Parliament, it’s the poorest who suffer.

As we have seen, miniority Government makes every MSP’s vote count. Even small parties can have big influence. It was the SSP that achieved the abolition of warrant sales because they cared about the dignity of ordinary working people. It was the SSP that got the ball rolling on free prescriptions. And to this day, the SSP are the only party to have introduced legislation to the Parliament that would have scrapped council tax and replaced it with a local income tax. Of course it was voted down.

I am simply not prepared to risk five more years of Tory cuts and no-one speaking up for the voiceless and the vulnerable.

That’s why I’m giving the SSP my vote tomorrow.

Why Greens’ tax plans are regressive

I’ve been challenged for saying that the Greens’ Land Value Tax plans are regressive. Here’s why I think they are.

In “A Fairer Way” - the report of the Local Government Finance Review Committee they produce a table that sets out the spread of different income deciles by council tax band. It looks like this:

Table 12.4: Approximate distribution of households by income and council tax band

Figures in thousands (Percentage of all households in Scotland)

Decile	Band A	Band B	Band C	Band D	Band E	Bands F to H
1	102 (4.6%)	62 (2.8%)	29 (1.3%)	21 (1.0%)	12 (0.5%)	6 (0.3%)
2	91 (4.1%)	53 (2.4%)	25 (1.1%)	18 (0.8%)	9 (0.4%)	6 (0.3%)
3	89 (4.0%)	57 (2.6%)	27 (1.2%)	13 (0.6%)	10 (0.4%)	7 (0.3%)
4	84 (3.8%)	53 (2.4%)	29 (1.3%)	20 (0.9%)	10 (0.5%)	7 (0.3%)
5	53 (2.4%)	63 (2.8%)	40 (1.8%)	28 (1.2%)	22 (1.0%)	7 (0.4%)
6	50 (2.2%)	56 (2.5%)	38 (1.7%)	37 (1.6%)	29 (1.3%)	9 (0.5%)
7	44 (2.0%)	57 (2.5%)	37 (1.7%)	37 (1.6%)	28 (1.2%)	26 (1.3%)
8	29 (1.3%)	49 (2.2%)	41 (1.8%)	46 (2.1%)	38 (1.7%)	30 (1.5%)
9	28 (1.2%)	41 (1.8%)	38 (1.7%)	44 (2.0%)	52 (2.4%)	41 (2.1%)
10	14 (0.6%)	25 (1.1%)	25 (1.1%)	42 (1.9%)	60 (2.7%)	86 (4.4%)

Using this table, and by replacing the council tax rates for the average Land Value Tax bill by council tax band (figures contained in the Greens’ LVT proposals paper), I was able to work out how much Land Value Tax on average households in each income decile would pay as a proportion of their disposable income.

The figures come out as follows:

Income Decile	LVT bill as % of disposable income
1	9.25%
2	6.11%
3	5.03%
4	4.39%
5	4.20%
6	3.90%
7	3.86%
8	3.59%
9	3.18%
10	2.79%

You can clearly see that the further up the income deciles you go, the less you pay proportionately in Land Value Tax.

The Greens haven’t produced an income decile analysis, their analysis stops short, merely pointing out the impact on people living in homes in the different council tax bands.

Local Income Tax – the most progressive alternative to the council tax

People get a bit hot and bothered about the use of the word “progressive”. In one sense a tax is only progressive if it falls more heavily on those with higher incomes than on those with lower incomes. Income tax is clearly progressive in this sense, and neither council tax or Land Value Tax (LVT) are progressive, since there is no direct link between income and council tax / land value tax levels.

Council Tax is regressive and deliberately so. It was set up that way. It bears no strong relation to either the income or the wealth of the person who pays it. It is based on a traditional two adult family and gives a grudging 25% discount to single people, rather than the more logical 50% you might expect.

It is argued that Land Value Tax is progressive as by and large people with higher incomes live in more expensive properties and have higher levels of wealth. Coupled with the fact that LVT is levied on land owners and not tenants, the argument is that it is a tax on wealth. I have seen no decent evidence to support this claim, which takes no account of the fact that LVT will be passed on (at least to some extent) in increased rents to tenants. Neither does it allow for the fact that the value of a person’s home may not bear much relation to their actual wealth. Some people own their homes outright, some are part way through paying off their mortgage and some are even in negative equity; in effect they have negative wealth.

In fact the only evidence I have seen suggests that although LVT is more progressive than council tax, it is still regressive in the sense that people on low incomes pay proportionately more of their income on it than people on higher incomes.

So out of Council Tax, Land Value Tax and local income tax, local income tax is the only one that is “progressive” in that strict sense.

A wider understanding of “progressive”

During the last UK general election all parties were saying they were “progressive”, rendering the word useless. However, there clearly is a sense in which “progressive” means the opposite of “small c” conservatism – being willing to make changes and reforms to counter the prevailing status quo, ideas and attitudes.

Under this definition I think the Greens can justify their argument that their LVT proposals, (which are an attempt at raising more revenue from the wealthier people in society) are progressive. Their tax still hits lower income households harder than higher income ones, but less so than council tax, and the increased income will protect some of the services that often those on lower incomes rely on more heavily than the rich.

However LVT doesn’t compare favourably with the SSP’s graduated local income tax (they call it Scottish Service Tax or “SST”) which raises more than the Greens’ LVT and is also progressive in the strict sense mentioned above. Under SST, people on higher incomes pay proportionately more than people on lower incomes. That makes it an obviously more progressive solution than the Land Value Tax.

Equality

But here’s an issue which I don’t think get’s enough consideration, and I think it is also a reason for claiming that the SST is more progressive that the rival options.

Council Tax and LVT do not change to reflect individual and changing circumstances. That’s because they are about the properties on which the rates are based, and not the people living in those properties.

Think about the different ways in which your life can change.

Think about the effect of getting a promotion or moving to a job that pays you more money, your income tax bill goes up, your council tax or LVT bill doesn’t.

Think about the different ways your life can change and result in a reduction to your income:

• Taking time off work to have children,
• Reducing your working hours to care for a relative or friend
• Becoming a single parent as a result of a divorce or break-up
• getting made redundant
• becoming sick or disabled.

OK, thankfully some of the above may not affect that many people, but overall most of us will be affected by at least one of the above changes, and probably more than one.

And when any of these changes happen and a household income reduces, your income tax reduces too, but your council tax (or LVT if we had that) does not. Suddenly that council tax bill that you never really worried about becomes a big problem.

And who is more likely to be a carer? Who is more likely to take time off work to raise children, putting career and earnings on hold? When families split up, who ends up looking after the kids more often than not?

The answer is women.

• Women earn less than men,
• Women are more likely to work part-time,
• Women are more likely to take time off work to care for children or other family members.,
• Women are more likely to do the lion’s share of childcare if a relationship breaks down,
• And at the end of all that, women get rewarded with lower pensions.

In short, because women earn less and do more unpaid work, they suffer disproportionately under a fixed property tax like LVT or Council Tax.

On the other hand a local income tax takes account of ability to pay, and so takes account of changing circumstances and the inequalities that still exist in society. Council tax and LVT don’t just ignore these issues, they make them worse.

I think that acknowledging and responding to the fact that there is still discrimination and inequality in society is a mark of progressive politics. Of course the inequality and discrimination needs to be tackled and eliminated. But until we get there, the effects also have to be mitigated.

The Scottish Socialist Party’s SST is better for women, better for carers, better for pensioners and for disabled people who often earn less than people who are not disabled. And it is better for people whose lives change either by design or by accident.

If you are in favour of a “progressive” response to the council tax and the Westminster imposed cuts, then whatever you mean by “progressive”, I urge you to vote for the SSP; the only party with any kind of local income tax in their manifesto this election.

Making the Council Tax Freeze fairer

If you are interested in the council tax freeze and you support it then you should read this.

If you don’t support the freeze, but think it’s probably going to happen anyway, then you should read this.

I’m suggesting a simple improvement to the council tax freeze. My proposal costs exactly the same, £70 million a year, and it keeps all the benefits of the freeze. But importantly, it also gives a bit of help to people on low incomes who currently get no benefit from the freeze at all.

First I need to point out that I’m against the council tax freeze, I think council tax should be scrapped and replaced with a local income tax. But that almost certainly isn’t going to happen for the next five years.

It looks likely that the SNP will win, and that they will seek to implement a five-year council tax freeze.

I have loads of issues with the freeze, and I’ve already written about them on this blog. But I want to set that aside and look now at one issue in particular. I suggest a simple improvement which allows the SNP to keep their promise to the electorate, but benefit more people.

Council Tax Benefit, water charges and the Freeze

There are three things to remember as you read my plan:

1. Water and sewerage charges are based on your council tax band and are billed and collected along with your council tax. They are so closely bundled up that some people forget that the money they pay to councils each month is actually their council tax bill and their water and sewerage charges bill combined. That’s why some people thought their council tax was going up despite the freeze – the council tax part was frozen, but the water charge part continued to rise in line with inflation.
2. Most council tax payers benefit from the council tax freeze because without it their bill would go up and they’d pay more but this is not true for someone who receives council tax benefit (CTB). If you receive CTB then the UK Government Department for Work and Pensions (DWP) pays your council tax bill for you. Even if your bill does go up, it continues to be paid for by CTB. Because of this the freeze helps the DWP because if council tax were to increase the overall council tax benefit cost would increase too.
3. People who receive council tax benefit still have to pay their water bills. The freeze applies to the bit of the bill that they don’t pay, but doesn’t help them with the bit of the bill that they do pay.

By now, I hope you can see where I am going with this – by simply applying the £70 million subsidy to the water charges part of the bill instead of the council tax part you can help everyone who pays water charges, including those who get CTB and who are by definition living in some of the lowest income households in Scotland.

How would this work in practice?

Here’s a rough example, just to show how it would work. Don’t take the figures too literally, they are intended to demonstrate the principle.

At the moment the total bill you pay to your council is about one-third water charges and about two-thirds council tax.

Let’s say you pay £150 a month, then £100 of this is your council tax bill and £50 is your water bill. Now let’s say that inflation is 3%. Next year your water bill will go up by 3% to £51.50. Without the freeze, your council tax bill would go up to £103, but instead it will be kept at £100 by the Scottish Government. They will in effect pay your council £3 a month on your behalf to freeze your bill.

So your combined total bill goes up from £150 to £151.50. That’s an overall increase of 1%.

Right, now let’s look at how things would work out under my proposal. Let’s assume your council puts up your council tax by 3%. It goes up from £100 to £103. Scottish Water want to raise your bill by 3% too, from £50 to £51.50. But instead the Scottish Government  subsidises your water bill by the same amount that they were going to use on the council tax freeze – £3. That means they can go further than just freezing your water bill. They can afford to pay Scottish Water £1.50 not to increase your bill, keeping it at £50, but they can also reduce your bill by a further £1.50. Meaning your water bill actually goes down to £48.50, an overall reduction of 3%.

So your new total combined bill goes up from £150 to £151.50. That’s the exact same 1% increase you would have faced under the council tax freeze.

Look at the impact of switching the subsidy from council tax to water charges:

• It makes no difference at all to the Scottish Government, it costs them the same – £70 million.
• It makes no difference at all to councils – they get an increased income equivalent to 3% on council tax either way.
• It makes no difference at all to Scottish Water – they get an increase equivalent to 3% on domestic water bills either way
• And it  makes no difference at all to you, the council tax payer – you still pay an overall 1% increase either way.

But now consider someone on full council tax benefit

Under the freeze, their £100 council tax bill is paid for by the DWP. Their £50 water bill is reduced by 25% to £37.50 because people on CTB get a 25% discount off their water bill.  This bill goes up by 3% to £38.63.

So under the council tax freeze their overall bill of £37.50 goes up to £38.63, an increase of 3%.

Under my proposal their council tax bill goes up to £103 and is paid for by CTB. But the Scottish Government are paying Scottish Water to reduce bills by 3%.

So under my proposal their overall bill goes down to £36.38.

 A No-Brainer?

Under my proposal someone receiving council tax benefit sees their overall bill reduce by 3%, whereas under the SNP’s council tax freeze their overall bill increases by 3%.

How often do we all as taxpayers get a chance to suggest a change that costs us nothing personally, but gives a hand to those most in need? Well I’m offering you one, please take it seriously.

After all, isn’t that standing up for Scotland?

I’ll say this for the Tories, they know how to use a calculator

The Tories are offering pensioners a £200 discount off their council tax bills from 2013. They have included the cost of this in their spending plans paper. They know how much it costs because the information is publicly available in a PQ answer.

I have to say it’s refreshing to read a bit of honesty, based on real facts. Giving pensioners a £200 council tax discount would cost £125 million a year. It’s there for anyone to check.

Compare this to the fact that the SNP never mention that their council tax freeze will cost £1 billion. Compare this to the fact that the Greens overestimate the extra revenue they’ll raise under their Land Value Tax by £477 million, and overestimate the number of households that will benefit claiming 87.7% will be better off when the truth is more like 55%.

So well done the Tories, you’ve got a policy, you’ve costed it, you’ve referenced the data on which it was based, and you’ve included it in a balanced spending programme. If only the other parties were as honest.

I still don’t see why pensioners are a special case by the way, I don’t see why a pensioner on a decent £20K pension deserves a discount more than a single parent earning £18K. And I don’t agree with the Tories’ cuts agenda either, or their plans to make students pay tuition fees. But at least I can look at the policy, see how much it costs, and make my decision based on proper evidence.

By the way, I have seen the SSP’s claims that they’ll raise an extra £1.5 billion with their Local income Tax, and they are based on official UK Government data for income levels in Scotland and stack up fine as well, so well done to them too. (Thank you to Eddie Truman for emailing me their analysis).

But unfortunately, the Tories are much more likely to hold the balance of power after May 5th than the SSP. They are likely to find themselves supporting the SNP minority Government as they have done for the last four years, and they may be looking to extract a cut for pensioners’ council tax bills in exchange for their support.