Here we go again

Wednesday, 20 May 2009 15:59

Local Income Tax is an idea that keeps on popping up like a perennial weed. The House of Commons Communities and Local Government Committee has just produced a report called "The Balance of Power: Central and Local Government". In the section on finance, we read...

"A further solution would be to either replace or supplement council tax with a different local tax, such as a local income tax. This proposal has a long pedigree: it was recommended by the Layfield committee as the best means of changing the balance of funding from central to local government. As our predecessors noted in their report, a local income tax could not be introduced without detailed research assessing the practical implications.

"There are also disadvantages to a local income tax, for example revenue would go down during a recession. Pragmatically, it would also be necessary to ensure that the first year of implementation had a net zero impact on tax payers to avoid a backlash against central government. In principle, though, a supplementary local income tax, introduced alongside council tax but with a corresponding reduction in central taxation so that the overall tax burden remained the same, is a potential longer-term solution to the balance of funding problem, and one that Government should seriously consider. It would be possible to replace central funding with such an income tax without any change to the total collected in taxation overall. Councils would then decide at what level to set their local tax."
The Committee has been to Sweden and Denmark where the committee got the impression that it was working well. Whilst Sweden and Denmark are well ordered countries which generally function as they should, it is usually safe to assume, first, that things are not quite as good as they appear on the surface, and second, like many wines that taste good when drunk near the vineyard, Scandinavian practices do not travel well.

Unlike the Committee, we don't think that local income tax is one that the government or anyone else should consider seriously or at all. The obvious trouble is that people can move whereas is fixed, which inevitably makes it difficult to localise taxes on people and goods. The drawbacks of local income tax have been rehearsed many times but for convenient reference here they again:-

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