Monday, September 29, 2008

Council Tax Emerges as Defining Battleground at Next Election

George Osborne’s conference announcement that the Conservatives would plan to freeze council tax bills over a two year period is a thought provoking, yet timid incursion into the debate surrounding council tax.

Let us be clear about the nature of the proposal, one that is small in scale but intended to be large on political impact. Osborne estimates that the freeze on council tax bills will cost in the region of £1.5bn over the course of two years. He emphasises that the Conservatives would be able to fund this proposal by trimming government consultancy budgets; by £270m in the first year and £770m in the second (http://news.bbc.co.uk/1/hi/uk_politics/7640966.stm). The message that Osborne and the Conservatives will be keen to emphasise is that this modest proposal will not involve a cut in frontline services. The Cameroons are desperate to avoid a repeat of the 2005 election campaign, in which Labour relentlessly attacked the Conservatives as a tax cutting, service cutting party. As far as this aspect of the debate goes, I think it is clear that Osborne’s proposal is modest in nature; the new leadership has successfully resisted a right wing clamour to offer upfront, unfunded tax cuts. It would be a mistake to portray this Conservative party as one that will slash public services in the way that predecessors may have threatened to do.

So, I accede that this is a responsibly costed proposal and one that doesn’t pose a grave threat to local services. The next question to ask is whether a two year freeze on council tax is a policy that will really make an appreciable difference to those who have been hit hardest by mounting council tax bills. It is here that I don’t believe that the Conservative proposal stands up to scrutiny, particularly by comparison to the more radical and progressive alternative favoured by the Liberal Democrats. The outright ‘freeze’ on council bills that Osborne proposals will give a small reprieve to all taxpayers, from the richest to the poorest. A welcome reprieve perhaps, but not a policy that even attempts to deal with the fundamental flaw of the council tax.
The essential problem with the council tax is that it is a regressive tax, one that taxes people on the value of their homes, not their ability to pay. The damning reality of the council tax is that those on low and middle incomes pay a far greater percentage of their income towards this tax, than those on higher incomes. In 2005, council tax accounted for 4.7% of the income of the bottom 20% of households and just 1.4% of the top 20% (http://campaigns.libdems.org.uk/axe_unfair). The Conservative proposal does absolutely nothing to tackle this gross inequity. Osborne’s proposal will do nothing to alter the status quo. Under his ‘freeze’ proposal, those on the lowest incomes will continue to pay proportionately more of their income in council tax than their more affluent neighbours.

It is only right that I draw attention to the governing party’s stance on this issue. I will be brief, as Labour’s record on reforming the council tax has been one of contemptuous inaction. As has so often been the case with this government, Labour commissioned a review into council tax, only to dismiss the findings. The Lyons Report was rejected by Gordon Brown, who was seemingly fearful of overseeing any meaningful reform. Subsequently, Labour has said nothing on council tax, seemingly happy to allow this deeply iniquitous state of affairs to remain.

It is only the Liberal Democrats who have made a compelling case for reform. Their plan to replace council tax with a local income tax is openly ‘revenue neutral’. This means that under their proposals, the lowest paid will pay less and the wealthy will pay more than they currently do. As Lyons said himself in his review for the government, “fair taxation is based on the ability to pay”. The Liberal Democrat proposal ensures that a clear majority of people are better off and that low earners are relieved of what is currently a disproportionate and unfair burden.

Osborne’s intervention today shows the electorate that they will have 3 clear choices on council tax by the time of the next election:

Labour offers us a commitment to the status quo; no reform, no change, no progress.

The Conservative party offers us all a short term bribe by virtue of their council tax ‘freeze’. An interesting development, but one that makes no attempt to change the deeply regressive nature of the council tax.

The Liberal Democrats offer open and honest reform. A shift to a local income tax that will relieve a huge burden from low and middle income earners who are currently hit so hard by the council tax.

Which option will you choose?

2 comments:

Christine Melsom said...

Hasn't the Liberal Democratic Party decided to shelve LIT for the present. Vince Cable mentioned this at your conference recently.
If it hasn't been shelved, let's be fair the policy document does say that there will also be a land tax.

J said...

I'll choose the option that can be delivered easily as an interim measure, and worry about totally reforming the system (which will take much longer) later.