18 July 2008
The local government finance system in Scotland could be destabilised, with serious implications for services, if a local income tax is introduced, leading revenue experts warned this week.
In a submission to the Scottish government, IRRV Scotland (Institute of Revenues Rating and Valuation) says councils face a 'gaping hole' in their finances as income from the LIT would be less than from the council tax. Scotland is also unlikely to receive the £400m in council tax benefit that has been included in the LIT calculations.
According to the IRRV, further losses could be incurred as legal avoidance would be much easier than it is under the current property-based council tax system. As new procedures would be needed to confirm where people live, the IRRV states: 'It is likely that a registration system would be required, similar to that used during the community charge, but experience of that suggests that it would be ineffective, expensive to administer and deeply unpopular.'
The institute's comments are made in response to the minority Scottish National Party government's consultation on its plans for a centrally set LIT of 3p in the pound. The consultation ends on July 18.
The IRRV notes that the Scottish Government's own projections show that a 3p rate would create a funding shortfall of £281m in the first year alone of the new tax. 'This deficit is based on the assumption that Scotland will continue to receive over £400m a year in equivalent monies to council tax benefit, even after the abolition of council tax.'
The IRRV warns that the funding shortfall would have serious implications for services and the new system itself would lead to increased costs of collection and enforcement.
It argues that a more acceptable and less costly alternative would be a reformed property-based tax system linked to ability to pay.
IRRV Scotland president Hillary Kelly said: 'The Scottish Government has before it the perfect opportunity to be bold and innovative in tailoring a property-based tax to suit the needs of the Scottish people, without sacrificing the financial stability of local authority services.'
PFjul2008
