Reviewing the Case for a Local Income Tax

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Reviewing the Case for a Local Income Tax
Steve Freer and Phillip Ramsdale
Balance Of Funding Review Steering Group 4 March
2004
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Headlines

• Local Income Tax would affect 30.7m taxpayers
  (5.7 million more than the Council Tax).
• The Inland Revenue would have to be the
  collection agent IR favours a system of
  Non-Assessment.
• Risk would increase significantly if the tax base
  was shifted from property to personal incomes.
• Supplementing Council Tax with a LIT would cost
  more, but its introduction could be better
  contained within existing tax levels.

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N A T I O N A L
LIT in name only
S E T T I N G
Very high admin costs and significant problems
for employers
Genuine local tax, with economies of scale and
integration with national income tax
L O C A L
L O C A L
N A T I O N A L
COLLECTING
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Replacing the Council Tax
Supplementing the Council Tax
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There will be a continuing need for equalisation
Leicester
Leicester
Wokingham
Wokingham
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Managing the Tax Base
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Managing Deductions
Under/over payments billed/refunded or carried
forward to next year
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Perspective Policy Makersand Stewards

• The Non-Assessment tax system
• Law of equal and opposite effects
• National / regional coordination
• Cost of collection / ease of collection

IR / 4 National Executives / 434 LAs
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Perspective Employers

• PAYE simplicity and robustness
• Changes of address
• Impact on labour costs
• Company dividends
• Minimising any additional burdens

1½ Million
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Perspective Taxpayers

• What am I paying for?
• Am I paying twice?
• Accountability questions
• Wealth -v- Income behaviour

30.7 Million
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Thorny Issues

• A surcharge on the standard rate or on all income
  tax rates?
• Tax on investment income levied at a standard
  rate?
• Difficulties synchronising payments with year of
  spending for non-PAYE taxpayers.
• Local authority budget timetables will need to be
  advanced.
• How many tax setting authorities? ie how many
  subdivisions of the national tax base?

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Thorny Issues (cont)

• A more variable and less stable tax base than
  property a greater need for equalisation.
• UK-wide implementation or England only? Timing of
  legislation in the various assemblies and
  parliaments. Implications of cliff edges if the
  tax is not universal.
• Preparation and set-up requirements not to be
  under-estimated.
• Who would pay the collection costs? IR or LAs?