This is one of the cleverest myths ever dreamed up the Home-Owner-Ists. A lot of local councils e.g. Stafford Borough Council actually use that very wording on their website** even though on page 14 of their Annual Report they cheerfully admit that "Around a third of our income is collected through the Council Tax... The rest of our income is from other sources, including a significant proportion from Central Government."
The notion comes up time and again in any discussion of the taxation of residential land and buildings, but it is one of the many Big Fat Lies underpinning the UK's tax system* and until we dispel it there is little chance of having a proper debate (and that's before we discuss what the government should be doing in the first place, how much waste and overspend there is in the system etc etc.)
1. As a simple matter of observation and logic, most 'services' are local services (just about anything apart from the armed forces, foreign embassies, interest payments on the national debt and direct payments to foreign countries such as EU subscriptions and aid payments), in other words about eighty per cent of government spending.
2. And as another observation of fact, Council Tax revenues are less than 5% of total government tax and other revenues (see Tab C2, Public Sector Finances Databank).
3. Even if we hypothecate a chunk of other taxes to non-local services, we therefore conclude that "Council Tax pays for one-sixteenth of the cost of local services".
4. "Hang about here!" the crowd shouts, "Didn't you just link to something that said that Council Tax covers a third of the cost of local services?"
5. Again, this is because that borough defines 'local services' as an arbitrary sub-set of things which are under their direct control and excludes e.g. schools and hospitals, which are also managed locally and are clearly 'local services' (i.e. they primarily benefit people living in the area) but which are funded directly by Whitehall departments (the cost of the NHS and the education system alone are about eight times as much as total Council Tax revenues).
6. And further, is there any fundamental reason why welfare and pensions are not considered to be 'local services' but things like free public libraries, meals-on-wheels, subsidised swimming pools are? The former are non-earmarked cash payments paid to people in any area; the latter are cash subsidies paid to people in any area, there is no fundamental difference in real life.
7. For example, the government could decide that libraries/meals-on-wheels etc fail any sort of cost-benefit analysis, that these will all be shut down and instead they'll give everybody £10 in book tokens/give every pensioner £500 in Luncheon Vouchers every year out of a central pot. Why are libraries/meals-on-wheels considered to be 'local services' but not book tokens/Luncheon Vouchers?
8. So as a thought experiment: what if the accounting trickery were simply reversed and taxes on land and buildings (like Council Tax and Business Rates) were hypothecated for non-local stuff (see list in para 1. above), and local councils collected all the income tax, National Insurance and VAT etc to pay for everything else? (Sure, there'd have to be some equalisation between councils but that is a separate issue).
9. For a start, this would throw an interesting light on The Morbidly Obese One's faux democratic plan to allow people to veto Council Tax increases in their area. Wouldn't it be much better for that very modest tax to be set nationally and to allow people to be able to vote on how much income tax, VAT etc (the other 95% of government revenues) they are willing to pay?
--------------------------------------------
* The others being "Council Tax is unfair because it does not relate to 'ability to pay'", "Income tax is fair because it relates to 'ability to pay'", "My National Insurance goes toward my pension/welfare/the cost of the NHS", "VAT is borne by consumers", "VAT helps our balance of trade by discouraging imports", "Alcohol and tobacco duty discourage drinking and smoking", "Means testing of benefits reduces the cost to the taxpayer" and so on and so forth.
** Interestingly, that council's summary of how Business Rates work is very good:
Business Rates (also known as National Non-Domestic Rates) are collected by the Council and then paid into a national 'central pool', the contents of which are redistributed to all councils in proportion to the number of Council Tax payers in that area. This, together with the Council's income from Council Tax and the Central Government Revenue Support Grant, is the main way that the Council finances the services it provides.
This system has the unintended consequence that local councils would far rather zone land for residential than for commercial use, of course!
Crowds and Warnings
58 minutes ago
13 comments:
That one is still by far the most important lie to counter.
Followed by: "My National Insurance goes toward my pension/welfare/the cost of the NHS"
IT ALL GOES IN THE GOD DAMN POT YOU MORONS
Think my argument will convince people?
SW, people never understood what he meant when he said "The secret is, there ain't no fund", so let's try your version and extend it to ALL taxes. They ALL go in the pot!
SW, but they have to means-test benefits to "reduce the cost to the taxpayer... oh, hang on..."
Plus, most of the 50% of the population who have never claimed welfare are morons as well.
Yes, one of the objections to LVT that I don't get is the whole "not related to ability to pay" because of course the manner which you have suggested that it is calculated would mean that "poor" areas pay lower tax and "rich" areas pay more tax but the marginal incentive to increase ones earnings is then increased by reduced/abolished income taxes and the LVT being fixed...
If someone told me the missus and I had to pay £6,000 in taxes regardless of what we earn then we'd probably work more hours and increase our income. When you get to keep 18p in the £1, what's the bloody point, i'd rather sit and chill.
There is then of course the obvious fact that it would create an entire new insurance product (LVT insurance!!)
SW, LVT insurance is another splendid idea. Of course, it would be a smoothing exercise rather than insurance (unemployment insurance is a risk allocating exercise) but hey.
All LVT is, when it boils down to it, is a variable rate, interest-only, non-repayable and non-recourse loan attached to each bit of land.
So no doubt banks will be able to convert this to a medium or long term fixed-rate loan, whereby the higher interest rate paid in the good years covers the shortfall in the bad years (unemployment, sudden increases in LVT without corresponding increases in income, retirement etc).
The bank could lump this in with your life insurance, pension fund insurance, normal mortgage on bricks and mortar etc, so that during your working life, you spend what you need and pay over the rest into your personal pot.
When you are unemployed, the bank withdraws from your pot etc, and when you retire, the bank splits the pot into
a) An annuity big enough to cover the LVT for the rest of your earthly days, and
b) Another pot which you can take as a lump sum or a pension.
Indeed but people would rather attack than use good ol' British ingenuity to think up transitional arrangements.
Not dreamed up by Homeownerists but by Them. The amount of actual benefit to each of us from Council Tax is small.
That's why much of what they raked off went to Iceland on speculation.
JH, your "Them" is the same as my "Home-Owner-Ists" for these purposes.
PS, the money they lost in Iceland was largely money earmarked for local authority pension schemes (which unlike most civil service pensions is actually funded).
I'm just gutted to learn that the beer duty I pay is not going towards the upkeep of pubs...
On the basis that less than one third of councils' income is spent on services the local people value, it seems perfectly fair to say that Council Tax pays for local services.
TFB, you aren't very good at maths, are you?
If councils waste two-thirds of their income, and we assume that the waste is paid for by taxes other than council tax (I don't see why we should, but let's go with it), then council tax still only pays for one-twelfth of the cost of local services.
And I doubt whether councils waste two-thirds of their money - it's Central government spending where nearly all of it is wasted.
I was being droll. Even the worst Inner London Borough is unable to waste two-thirds of its budget.
Nonetheless, the point remains that IF only one third were spent on useful stuff and IF one third were received via Council Tax, it would be entirely possible to argue that Council Tax pays for all the services and that the other two thirds ended up in the great public sector latrine.
TFB, the key is how you define 'local services'. To my mind it is just about everything, therefore your maths still does not stack up.
Post a Comment