Negative aspects of local income
tax
139. The Balance of funding research sub-group concluded
that there were some disadvantages to local income tax. For example,
- its base is limited by options
decided at a higher level;
- it is not very transparent - local tax policy
and national tax policy are difficult to separate; and
- the "joint" nature of the tax means
that the central government must become involved in setting the
base and the rate of the tax, thus lessening the autonomy of local
authorities.[178]
140. It has also been suggested that local income
tax would be more costly to collect than council tax, and would
impose an additional administrative burden on employers operating
PAYE. In response to the first criticism Chris Bilsland from Somerset
County Council argued that:
"It is more expensive than council tax collection,
because we know one of the benefits of council tax collection
is that property is easy to tax, easy to find, nobody disputes
that, but it is still an affordable cost in terms of the tax yield
and the cost of many other tax collections."[179]
The LGA accepted that:
"[…] there are concerns regarding the administrative
complexity and costs to both government and business which would
have to be addressed. A possible alternative is to assign a portion
of national income tax revenue to local government, which could
evolve into a LIT, subject to further review."[180]
141. Andrew Sugden from the North East Chamber of
Commerce noted: "our perspective on a local income tax is
the burden it would place on businesses in terms of administration,
rather than necessarily how it might work in terms of a charging
mechanism on the citizen".[181]
The British Chambers of Commerce argued that, "making
the Inland Revenue responsible for collecting income tax and then
passing it on to local authorities is overly complex and invites
disaster. Again this proposal fails the transparency and accountability
test."[182] Henry
Law, Honorary Secretary of the Land Value Tax Campaign warned:
"Complications would arise when taxpayers live
in one tax area and work in another. Income tax is often deducted
by employers, at source, through the PAYE system. Provisions would
have to be made for employers to identify by home address the
appropriate income tax rate for every employee, make deductions
accordingly and ensure that the Inland Revenue was correctly paid,
whilst the latter would have to remit the correct amount to the
appropriate local authority. Any conceivable administrative procedure
will be clumsy and costly in relation to the sums involved."[183]
142. The Chartered Institute of Public Finance and
Administration told us:
"Work undertaken by CIPFA demonstrates that
local income tax is a realistic option, but a complex one, with
much of the "devil in the detail"—not least the
redistributional effects that it would have. It would require
extremely detailed planning and preparation—and the time
necessary to achieve this."[184]
143. The introduction of a local income tax in
1976 would have been a leap in the dark, which ahead of new technology
would have created acute administrative problems for local government.
Since then new technology, and a scaling down of the plan for
local income tax to that suggested by CIPFA, has created a system
that might work. Nevertheless, the evidence is not remotely persuasive.
Administration would be costly. There is still far too little
known about the practical implications including the cost, redistribution
effect, impact on tax payers, including first time buyers, and
where people choose to live. It would be unwise to pursue implementation
of a local income tax before detailed research on these areas
had been undertaken.
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