Monday, 16 February 2015

"Council tax puts strain on family budgets"

The FT possible inadvertently trots out some Homey propaganda:

Council tax has overtaken credit cards as the most common debt problem in Britain, highlighting the strain on family budgets from years of stagnant incomes.

Citizens Advice, which has more than 3,000 centres around the country, said there had been a notable shift in problems away from consumer credit on discretionary items and towards basic household bills.

It expects to deal with 191,400 cases of council tax debt in 2014-15, up 20 per cent on the previous year.

The Homeys extrapolate from this to LVT and make outrageous claims about Council Tax being "the single biggest bill facing families" and LVT being regressive or unaffordable.


The problem is in the way it is collected.

Leaving any other tax or welfare reform aside, council tax is barely one-seventh as much as PAYE deducted from wages at source. That's why very few individuals rack up "PAYE arrears". The point is that PAYE is withheld at source - you don't get the opportunity to get into arrears.

But if you are strapped for cash, it is tempting to delay paying £100 a month in Council Tax and given the trivial amounts involved, councils don't always chase up if people are a few months overdue.

Thought experiment: what if the tables were turned:

a) Council Tax were deducted at source from wages (or pensions or indeed other welfare payments) that would be no more than £250 a month in Band H (or Band I in Wales) and very few people would even notice the difference, and

b) People received their wages gross and were asked to self-assess their PAYE and pay it over in monthly instalments, then PAYE arrears would go through the roof.

That way lies madness.

(But what if Council Tax were collected at source (by adjusting people's PAYE codes, for example, all perfectly do-able)? That would make it much easier to transition to higher but more progressive land value taxation with a corresponding reduction in income tax and National Insurance.)


Macheath said...

Can't help thinking of this from March 2013, when several pilot schemes were paying housing benefit to claimants instead of directly to landlords:

"By them paying the money directly to me it created temptation to use it for other things which has resulted in me being in arrears and possibly being evicted."

and, predictably enough,

The government says lessons will be learned from the pilot projects.

DBC Reed said...

You're right.
As I think we said before, if both income tax and property tax were taken out of wages it would be simple to jack up property tax and reduce income tax reciprocally so that the total deductions remained the same-as a first move possibly, looking to future deductions.

Dinero said...

I thought the thinking was that the burden of coucil tax was there so that residents would keep an eye on council spending, where Whitehall could not, and keep it in check.

Lola said...

Personally, I'd 'ban' government from collecting any taxes by 'stealth'. Of course with a LVT/CI system most of it would get netted off with only a balancing payment due.

There is nothing like making taxes in yer face to stop governments from increasing the.

DBC Reed said...

The same modern madness of "coercive taxation" as from the naĂŻve Daniel Hannan who seems to have read too many silly Ayn Rand books. Most people gladly pay tax because they get free (or cheap) medical and educational services and a host of other insurance policies such as the Fire Brigade coming to put out their burning buildings.The biggie that the public sector has almost entirely been pushed out of is the housing market which has gone completely and terrifyingly mad.And has fucked up the entire economic and political system.

Graeme said...

DBCR would welcome evidence that "most people gladly pay tax". I think most people are glad that the public sector is out of things such as telecoms and air travel, which Govt fucked up for many many years, and are wishing they would get out of power generation as well - eg stop rewarding people for building bird shredders and putting solar panels on roofs that hardly ever see sunshine and converting coal-burning power stations to wood-chippings imported from the USA. Personally, I am starting to wonder whether the public sector can even be trusted to handle defence and diplomacy any more.

Mark Wadsworth said...

McH, that's another example of government madness.

They ought to pay the HB straight to the landlords and deduct the council tax and 20% income tax from the payments to the landlord. Trebles all round!

DBC, thanks.

Din, that's what they say but not what they mean. But either way, that's an argument for taxing land values more and incomes less.

L, for sure, but the 'netting off' idea can be applied to everything. Under full on LVT/CI most households would pay or receive plus minus a couple of grand.

G, while I agree on bird shredders and wood chips, it is a separate topic to whether it is better to tax earnings or land values. The former has little intellectual merit, the latter has a lot of intellectual merit (regardless of how it is spent).

Bayard said...

"They ought to pay the HB straight to the landlords"

I suppose they are thinking that, by paying the HB direct to the landlord, it rather highlights the fact that the bulk of "welfare" payments are not paid to the poor, but instead to their rather richer landlords, which is inconvenient when you are trying to pretend it all goes to scuzzy undeserving dole bludgers.

Mark Wadsworth said...

B, I don't think they were thinking anything.

Most 'private' landlords agree it would be far better if HB were paid direct to them. In which I agree, but taking this to its logical conclusion, the payments to landlords should be net of income tax and council tax. Saves a lot of faff.

Weekend Yachtsman said...

" the payments to landlords should be net of income tax and council tax"

Yeah. And taking that to its logical conclusion, all public sector salaries should be paid nett of tax too; they don't pay tax, so why pretend? Another lot of faff saved!

mombers said...

The biggest cock up is that council tax is not paid for by the owner and secured by the title as a first lien. No bad debt and much lower collection costs. Landlords bear the burden of course via lower rents regardless of who pays but if council tax could be reduced by say 5% once bad dent and excessive collection costs go, they could increase rents and not be much worse off.

Bayard said...

"all public sector salaries should be paid nett of tax too"

They already are, if you are on PAYE. It's more like the public sector employers should be relieved of the necessity of accounting for income tax and national insurance and their budgets reduced accordingly. However, because of the "national insurance is not a tax" fiction, NI would still have to be accounted for, even if not actually "paid".

"Landlords bear the burden of course via lower rents regardless of who pays"

I was told some time ago that the reason why the tenant pays the CT is that it was not an allowable expense to set against the rental income before tax.

Mark Wadsworth said...

WY, yes of course. This is something which must be blindingly obvious to a child of seven, it's only grown ups who pretend it's necessary.

Lola and I have - independently - been banging on about this for ages.

M, yes, more good ideas.

B, the thing with landlords and Council Tax is slightly different. If a landlord pays the CT and adds it to the rent, then it is very much an allowable expense. The only quirk is that the LL can only claim the (overly generous) ten per cent wear and tear deduction from the rent minus council tax.

So in fact, there is no disincentive in the income tax system.

Physiocrat said...

Silly me. I thought that VAT was the largest amount of tax most people paid, followed by beer and fags.

But doesn't everyone have to pay the PAYE nominally paid by the people who work for the places they buy stuff from? Where does it come from if not from the customers,

Bayard said...

"But doesn't everyone have to pay the PAYE nominally paid by the people who work for the places they buy stuff from?"

Effectively, yes, but you'd be surprised at the number of people who don't really have much of an idea what they earn, once things like income tax, NI, paid holidays etc. are taken into account. Most people concentrate on the "before deductions" figure.

Physiocrat said...

Bayard - I would have thought most people concentrate on the amount in their pay packet or bank account, ie the number in the box on the pay slip. I know we always did.

Bayard said...

If you had to state how much you earn each year, would you state the pre or post tax figure? Certainly job adverts always quote a pre-tax figure and AFAICS, it is the pre tax figure that sticks in most people's head as their salary.

Physiocrat said...

Bayard, true but everyone I ever worked with counted the notes in their brown pay envelope and they realised that was their wages. The clue is in the name: pay packet.