25 July 2008
Public finance and chief council officers have warned that the Scottish Government's plans for a local income tax would create a funding gap of £742m, partially remove fiscal autonomy from local government and breach a European treaty.
In a joint response to the Scottish Government's consultation paper on LIT, CIPFA, the CIPFA Directors of Finance Section and the Society of Local Authority Chief Executives and Senior Managers argued that the potential shortfall could hit other local government and public services.
The criticism of the proposals by two leading public sector professional bodies is the latest setback for ministers, who want to introduce a centrally set LIT of 3p in the pound for Scotland's 32 local authorities.
Several other professional accountancy and revenue bodies have put forward similar reservations. The consultation ended on July 18.
The joint submission said the proposals would result in a £308.6m loss in tax yield – the difference between the present income from council tax and that estimated from LIT. There would be a further loss of £433.5m currently paid by the UK government in council tax benefit.
The officers estimated that a LIT of 4.5p would be required to maintain funding and services at 2008/09 levels.
CIPFA Scotland head Angela Scott said: 'Our strong recommendation is that further consultation is undertaken once the Scottish Government is able to be clearer on the technical issues we have raised.
'We all share a common desire to deliver a system that is fair and transparent to the taxpayer and which supports vibrant, accountable local government.'
The submission argued that the proposals 'remove the partial fiscal autonomy of local government' as they effectively transfer local fundraising powers to central government. It also questioned whether the proposals were consistent with the European Charter of Local Self Government. This states that councils must have the power to determine their own tax rate.
The two bodies advocated a progressive property-based system of local taxation 'set and raised locally and based on a reformed council tax'. But they acknowledged there could be merit in looking further at the possibility of an LIT, set by individual councils, as a supplement to property tax.