28 May 2004
Local income tax should be levied only by large multi-service authorities and at a rate selected from a fixed menu of around five, according to new research from CIPFA.
Its latest paper for the government-led Balance of Funding review says the key feature of any LIT regime must be simplicity.
For that reason, the paper says, the LIT rate should be set by top-tier authorities: this would involve fewer councils and make it much easier to collect through the existing PAYE tax system.
Having a small number of pre-set income tax rates, increasing in half percentage points between 2% and 4%, for authorities to choose from would also simplify administration.
Steve Freer, CIPFA chief executive, said LIT must be based on a 'simple, common-sense' model.
The paper was discussed at a BoF meeting on May 26 and is the second the government has commissioned from CIPFA on LIT since local government minister Nick Raynsford set up the review last year.
It confirms the institute's earlier view that the tax should be levied alongside a reformed council tax, not instead of it, and must lead to a corresponding reduction of around 3% in national taxation.
CIPFA estimates it would take four years and cost £330m to implement the new system. Even so, Freer said it was one of the few options that 'could shift the centre-local balance of funding significantly in favour of stronger local sources of funding'.