18 February 2007

Again, Liberal Democrats are calling for council tax to be abolished and replaced with a local income tax based, they say, on ability to pay.

This latest call comes as Liberal Democrats running Cornwall county council have increased council tax by 4.99 percent, a whisker short of the capping limit.

The calls are conflating two different points about the local tax:

(1) the present arrangements for paying based on the notional value of one’s house

(2) the amount that the council plans to spend.

I am not convinced that it is fairer to disregard the capital asset of a house and focus on present income than the present reverse arrangements. The fairest system, I think, would include both.

The present system has the advantage of being transparent. One cannot hide a house. We know some people do attempt to hide their income. At present, knowing the sort of house they have, one can check what one’s neighbours are paying in council tax. Privacy about income might well mean one could not check what one’s neighbours were paying in an income-based system.

The Liberal Democrats have to argue more effectively than at present. It is unacceptable simply to say rather than to argue that an income-based system is fairer.

Furthermore, what does “ability to pay” mean? What one can afford? Who will decide what that is, people themselves or the council? And what if what people can afford does not provide enough money for the council’s spending plans? Let’s be frank: the council will not decide its budget on what people say they can afford but rather on what it thinks it should spend to provide the services it thinks are needed at the level it thinks appropriate. “Ability to pay” won’t come into it and Liberal Democrats should face this. A mantra is not the same as a practical policy.

The first year under an income-based local tax would probably see steadiness though Liberal Democrat claims of most paying less have been heavily challenged. Let us assume that it begins on the basis of genuine ability to pay. But as the tax rises – and it will rise unless central government caps councils – what people have to pay will reflect what the council wants not what people can afford, as I have suggested above.

The first issue, the cause of the present difficulties, is not the system of paying though we should look at that. It is the amount that councils are spending. Cornwall county council’s budget for 2007-2008 is £309 million.

That takes us straight into the whole question of how we pay for what we want, what we pay for collectively and what we pay for as individuals, what we see as proper to society and what to individuals and families. As Britain has become more prosperous, the debate about these questions has sharpened.

These problems are difficult to resolve, it is hard to come to a reasonable judgement. Mantras are easier.