Paying for Local Services
Paying for Local Services.
This has become more of a contentious issue, particularly as the process is not clearly understood by the many that are forced to pay up. It is not clear to them just what tax goes where, to cover what and this opaqueness helps disguise the links and political democratic responsibility between how the money is raised and on what it is spent.
Tax is a cover-all euphemism and is broadly taken on three level, income tax, rate / council tax and indirect tax like vat, duty, corporate, investments etc. All of it is calculated into a central pot to pay for the upkeep of the UK. Such tax take has become an essential part of any modern society and has become more sophisticated in its scope of extraction. It has also broken the link many years earlier with the connection to direct expenditure on a particular thing – like funding wars.
What are the existing tax rate structures for?
Arguably and on a macro scale the reasons have hardly changed, that is to fund the state expenditure, latterly to even out area of economic strengths and assist redistribution. However the basis on which tax is extracted from the people, has over the years been modified to reflect the attitude of paying tax and the developed political perceptions to relocate, from the centre, the responsibility of raising it and paying for local infrastructure facilities how so ever used and by whom.
Although the general level of acceptability of taxing has change, two main sources, income tax and the old rating structure that had been in place for some time, was acceptable through common practice and association, taken as paying for ‘services’ and formed part of the process and practice of being employed, ownership of a house, capital receipts or operating a business.
With the increase in the cost of providing local services and the desire of the government to reduce it’s input into paying for local services from the central pot and to pass responsibility for increases onto the local authorities, the desired ‘policy’ of a direct responsibility link was matched by the policy to distance itself from the need to increase tax take and hide the switching from direct to indirect tax take with ‘blame’ for increases falling on those with different political ideology.
The trouble now is that the tax take is becoming so large due to the complexity of the states requirement, that new ways of paying for ‘state goods’ had to be derived. Unfortunately at the same time as adopting a policy and dogmatic attitude of rolling back the state intervention in all things, fostering the ideology of independence, individuality, and personal responsibility and not content with the notion of government / corporate responsibility to society; this propagated the drive to seemingly offer to continually reduce tax. This process of focusing on reducing taxation and fostering the idea that direct tax can continues to be reduced, has now established an increased fear that it (tax) can be used as a tool to lose or gain power, just as Thatcher successfully did in the 70’s and this has inadvertently started the process that has engineered an increasing persuasive resistance to paying taxes. No party would think of going into an election with a manifesto that blatantly says personal tax or any tax will be increased (and hope to win, without some form of obvious pubic lashing, payback or clear support) yet the adopted political imperative to reduce taxes is in direct conflict with tax revenue that has to be raised. With this dilemma different hidden or stealth tax ways are tried to disguise the central governments demands to raise tax, yet seemingly to offer to reduce it!
One great example of attempting to shift the responsibility of tax gave rise to the re-invention of The Poll Tax. Superficial a sound individual tax based on a house holds perceived use of or consumption of services and it was therefore to have them as individuals contribute to the cost of local services spread over the number of adults within the household. This process also moved the governments Rate Support Grant to lower levels. The Poll Tax was however a dramatic failure in acceptance terms as it ignored the practical social context.
Next came the council tax – a change of name but essentially the original rate based tax on property valuations with the emphasis on placing the amount of tax take on the local authority, while still allowing the government to reduce its Rate Support Grant, yet still control the amount of local tax raised via capping, at the same time retaining the levying of business rate tax for itself, again for political reasons.
The process of realigning and breaking the responsibility link between the taxer and the taxed was compounded within the Thatcher years, by effectively buying her government into power with the ‘right to buy’ scheme, reduction in higher band and corporation tax and reducing general personnel tax which mostly went to the betterment of the so called middle classes and wealthy. The tax breaks, it was argued would lead to greater investment and encourage top earners to do more for the country, it did nothing of the sort. It was a buying ‘monetarist’ success which indirectly eroded the governments overall financial position leading to the need to sell state assets. The tax take had to be increased yet the direct approach was no longer a political or perhaps public acceptable way of doing it. So started the beginning of stealth taxes, the most successful of which must be the establishment of the national lottery, with the governments take being a voluntary ‘tax’ largely funded by the less well off or ’working class’. This is not to ignore the rise in all other forms of indirect tax like duty, Vat, ‘windfall tax’, withdrawn pensions index link and tax benefits and rolling back central support on element of social funding that each subsequent government since then has adopted.
The original concept of establishing the Lottery, for funding solely community ‘Good Deeds’ and other activities that would not generally have been funded by the state, has unfortunately been deliberately lost. The government has been nicely backing away from funding some possible statutory schemes and forcing lottery funds to be used for un-elected dubious public and state schemes thereby loosing any element of possible ‘additionality’. The benefit of the scheme has been its easy popularity of use, its funding of social schemes and creating less of a draw on direct public funds.
One less obvious benefit within this Lottery gamble was the concept of hypothecation. Funds were to be raised and utilised specifically for a purpose, like organisation and people that did ‘Good Deeds’, deeds that seemed to take the essence of public funding back to where it (tax) started, funding for known identifiable schemes for the benefit of the people. This new funding stream has regrettably been in part perverted to finance political desires, so lottery finance has been top sliced to pay for a range of unpopular identified item – like the Dome, Millennium fund, Churchill papers, Royal Opera House fiasco, Olympics bid et al, all without the actual acquiescence of the people.
It is unfortunate that Hypothecation is an issue that is fiercely fought off by the treasury and not one that the government at large will want to have aired too much. However it was also an unspoken argument in the changing of the original property based rates structure to the poll tax, a form of potential hypothecation to make council spending more responsive to the local people that pay for services but at the same time it again allowed the government to slide away from having to provide increasing levels of RSG to Local Authorities while placing responsibility on them to do more with less.
The appealing thing about hypothecation is that it can show a potentially clear link between money raised and what it is spent on but the down side fear is that this linkage can be carried too far to encompass every element of local or national infrastructure usage and open it up to too much democratic influence. Having the populace directly choose how their tax is utilised, even on a limited level, is not political acceptable, as yet.
This resistance to hypothecation has extended to the application of lottery player choice, to provide a direct link to how the lottery money is spent. This had been mooted by Virgin, in its bid to take over the running of the lottery but establishing this hypothecation has so far been fought off.
This direct linkage by hypothecation is not what any government would want but at the same time the funding stream does urgently need to re-establish some element of connecting the money paid by the people to the goods and services which are available and that are used by them, a process that was potentially offered in a limited way with the defunct POLL TAX.
So how do we pay for local services?
Tax on property, VAT and PAYE is very effective, and is an easy collectable mechanism, yet they are not entirely fair and made more perverse with adjustments driven by political dogma. A number of surveys have shown that over the past 30 years the tax take has moved to fall more heavily on low-income groups. As the household demographic economics change, it is exacerbated by the growing differences between remunerations for effort. The rich have got substantially richer at the expense of the poorer. Regional wealth is still polarising and the cost of home ownership has risen with council tax band rated based on property value only. The effecting parameters have all been rehearsed before with some elements moving to the fore: -
Social housing no workers state supported.
Poor, no job, no assets, state supported
Owner Household with high income.
Owner Household + (partner?) Low or fixed income, or retired.
Rented accommodation.
The variable total amount of tax taken from dissimilar areas.
The density of private / commercial property / agriculture in a given area.
Inequitable rated bands.
North-South differentiation (for example)
Political expediency.
Translated as: - asset and cash rich, cash rich and asset poor, asset rich and cash poor, asset poor and cash poor, vote catchers dogma.
As the nature of the UK economy has changed and the way individual wealth holding has shifted, paying for local services becomes more unresponsive to the ability to pay. Had all direct income and corporate tax remained at its pre 1970’s level with the addition of new revenue streams, there may not have been the problem of funding state spending that we have now have and income tax would still have been the most effective and efficient way of responding to change. Today though, with the prominence and clear rise of propagated individualism, independence, self-reliance and self-interest, and the insistent drive for low tax, raising any tax seems to be a political and social anathema. It is patently clear however that a major change to funding local or national spending is becoming inevitable.
How would this change work?
It is most unlikely that any direct hypothecation will be fostered as a means of funding state spending. Perhaps though there should be greater scrutiny of how and why tax is raised, as it seems that we the people have very little influence on the application of national budgets, however an element of obvious hypothecation may be a way of allowing some control.
Although nationally hypothecation may be a NO WAY word it might work on a local level, after all there is already police and parish council precept, environmental levy (tax) and separated water rates. So in paying for local services the answer may lie in a mixture of: -
A property tax and hypothecated service charge tax.
Alternatively there could be scope to introduce a property tax based on the size (by sq.ft.)of the property, not on the value of dwelling, property owned or rented and land ownership.
Or bespoke local income tax.
Or do we continue work on the basis of a purely wider banded property tax, or progress it based on income or both?
Such a change in paying for local service cannot ignore one element that has gained increasing political clout at the expense of the voting majority, Business Rates. As Business rates have been effectively frozen over the past few years, it might be argued that the public are subsidising businesses that still derived the same notional benefits from an area and the infrastructure that has been provided by us all, why should that relief continue as domestic rates increase?
One favoured system would be to abolish rates in favour of a fixed land tax, together with a local income based tax collected via PAYE and a local hypothecated service charge. It must be possible to have a system that is flexible enough for people to afford to pay for local services and modify it as their circumstances change and offer some element of engagement with public control.
The problem of paying for local service is exacerbated with the problem of forecasted declining pensioner’s income, or those on a fixed state pension, falling private pension or perhaps people with no pension or income. As the population is getting older and there is an existing demographic deficit, there is already a talk of people working beyond the current retirement age of 65 to maintain a diverse work force, help fund the following generation and the twisted pension gap. Unusually over the past 2 decade the trend has been for some people to seek early retirement at around 55, or indeed are being forced to, due to the culture of ageism. This early retirement process ignores the cultural change that has taken place to the attitude of ‘work’, the poor ethos of the working environment and the actual ability or desire of people to work beyond some ‘acceptable’ age.
To help pay for the local / state service something dramatic needs to be done to make it attractive for people to work for as long as is feasible. An additional suggestion is to have direct tax reduced at the age of 65 to 10% on all earning (excluding pension if any) up to say £25K or based on the average income level but only up to this income band. Those whose income exceeds this band should not benefit at all from the 10% tax reduced take. This would help keep pensioners ‘economically’ active and perhaps linked to some of the changes above, help them continue to fund local services thus minimising rate revolts.
The following is an extract of the VOA site regarding the forthcoming rates revaluation and I have taken the liberty of inserting italic points for emphasis.
About Council Tax Revaluation.
“Under the council tax, all homes in England are currently placed in one of eight value bands, based on their open market value on 1 April 1991. (Which subsidises businesses and high valued property) It is not sustainable (for the government) to raise tax indefinitely on the basis of 1991 property values (due to diminishing tax value take) and so the Local Government Act 2003 provides for a revaluation to take effect from 1 April 2007, for which work on the revaluation of all 22 million dwellings (not businesses) in England should start in 2005. Under these proposals, council tax bills (will rise) based on 2005 property values will first issue in 2007. Thereafter, the Local Government Act sets out that there should be a revaluation every ten years (unless politically expedient). No decisions have yet been reached by the Government on whether, and if so what, revisions (of course there will be) should be made to the level and number of council tax bands. Those decisions will be informed by the outcome of the review currently being undertaken by Sir Michael Lyons due to report by end of 2005” (after the next election).
Website: http://www.voa.gov.uk/
Whatever steps are taken, one thing is certain, the resistant attitude of having to pay tax for the social good and the expectation that tax can continue to be reduced, has to change. It has to be seen to be much fairer least we continue down the path of beggar thy neighbour and eventually no one wants to pay for any universal services.
P. 4.7.04
This has become more of a contentious issue, particularly as the process is not clearly understood by the many that are forced to pay up. It is not clear to them just what tax goes where, to cover what and this opaqueness helps disguise the links and political democratic responsibility between how the money is raised and on what it is spent.
Tax is a cover-all euphemism and is broadly taken on three level, income tax, rate / council tax and indirect tax like vat, duty, corporate, investments etc. All of it is calculated into a central pot to pay for the upkeep of the UK. Such tax take has become an essential part of any modern society and has become more sophisticated in its scope of extraction. It has also broken the link many years earlier with the connection to direct expenditure on a particular thing – like funding wars.
What are the existing tax rate structures for?
Arguably and on a macro scale the reasons have hardly changed, that is to fund the state expenditure, latterly to even out area of economic strengths and assist redistribution. However the basis on which tax is extracted from the people, has over the years been modified to reflect the attitude of paying tax and the developed political perceptions to relocate, from the centre, the responsibility of raising it and paying for local infrastructure facilities how so ever used and by whom.
Although the general level of acceptability of taxing has change, two main sources, income tax and the old rating structure that had been in place for some time, was acceptable through common practice and association, taken as paying for ‘services’ and formed part of the process and practice of being employed, ownership of a house, capital receipts or operating a business.
With the increase in the cost of providing local services and the desire of the government to reduce it’s input into paying for local services from the central pot and to pass responsibility for increases onto the local authorities, the desired ‘policy’ of a direct responsibility link was matched by the policy to distance itself from the need to increase tax take and hide the switching from direct to indirect tax take with ‘blame’ for increases falling on those with different political ideology.
The trouble now is that the tax take is becoming so large due to the complexity of the states requirement, that new ways of paying for ‘state goods’ had to be derived. Unfortunately at the same time as adopting a policy and dogmatic attitude of rolling back the state intervention in all things, fostering the ideology of independence, individuality, and personal responsibility and not content with the notion of government / corporate responsibility to society; this propagated the drive to seemingly offer to continually reduce tax. This process of focusing on reducing taxation and fostering the idea that direct tax can continues to be reduced, has now established an increased fear that it (tax) can be used as a tool to lose or gain power, just as Thatcher successfully did in the 70’s and this has inadvertently started the process that has engineered an increasing persuasive resistance to paying taxes. No party would think of going into an election with a manifesto that blatantly says personal tax or any tax will be increased (and hope to win, without some form of obvious pubic lashing, payback or clear support) yet the adopted political imperative to reduce taxes is in direct conflict with tax revenue that has to be raised. With this dilemma different hidden or stealth tax ways are tried to disguise the central governments demands to raise tax, yet seemingly to offer to reduce it!
One great example of attempting to shift the responsibility of tax gave rise to the re-invention of The Poll Tax. Superficial a sound individual tax based on a house holds perceived use of or consumption of services and it was therefore to have them as individuals contribute to the cost of local services spread over the number of adults within the household. This process also moved the governments Rate Support Grant to lower levels. The Poll Tax was however a dramatic failure in acceptance terms as it ignored the practical social context.
Next came the council tax – a change of name but essentially the original rate based tax on property valuations with the emphasis on placing the amount of tax take on the local authority, while still allowing the government to reduce its Rate Support Grant, yet still control the amount of local tax raised via capping, at the same time retaining the levying of business rate tax for itself, again for political reasons.
The process of realigning and breaking the responsibility link between the taxer and the taxed was compounded within the Thatcher years, by effectively buying her government into power with the ‘right to buy’ scheme, reduction in higher band and corporation tax and reducing general personnel tax which mostly went to the betterment of the so called middle classes and wealthy. The tax breaks, it was argued would lead to greater investment and encourage top earners to do more for the country, it did nothing of the sort. It was a buying ‘monetarist’ success which indirectly eroded the governments overall financial position leading to the need to sell state assets. The tax take had to be increased yet the direct approach was no longer a political or perhaps public acceptable way of doing it. So started the beginning of stealth taxes, the most successful of which must be the establishment of the national lottery, with the governments take being a voluntary ‘tax’ largely funded by the less well off or ’working class’. This is not to ignore the rise in all other forms of indirect tax like duty, Vat, ‘windfall tax’, withdrawn pensions index link and tax benefits and rolling back central support on element of social funding that each subsequent government since then has adopted.
The original concept of establishing the Lottery, for funding solely community ‘Good Deeds’ and other activities that would not generally have been funded by the state, has unfortunately been deliberately lost. The government has been nicely backing away from funding some possible statutory schemes and forcing lottery funds to be used for un-elected dubious public and state schemes thereby loosing any element of possible ‘additionality’. The benefit of the scheme has been its easy popularity of use, its funding of social schemes and creating less of a draw on direct public funds.
One less obvious benefit within this Lottery gamble was the concept of hypothecation. Funds were to be raised and utilised specifically for a purpose, like organisation and people that did ‘Good Deeds’, deeds that seemed to take the essence of public funding back to where it (tax) started, funding for known identifiable schemes for the benefit of the people. This new funding stream has regrettably been in part perverted to finance political desires, so lottery finance has been top sliced to pay for a range of unpopular identified item – like the Dome, Millennium fund, Churchill papers, Royal Opera House fiasco, Olympics bid et al, all without the actual acquiescence of the people.
It is unfortunate that Hypothecation is an issue that is fiercely fought off by the treasury and not one that the government at large will want to have aired too much. However it was also an unspoken argument in the changing of the original property based rates structure to the poll tax, a form of potential hypothecation to make council spending more responsive to the local people that pay for services but at the same time it again allowed the government to slide away from having to provide increasing levels of RSG to Local Authorities while placing responsibility on them to do more with less.
The appealing thing about hypothecation is that it can show a potentially clear link between money raised and what it is spent on but the down side fear is that this linkage can be carried too far to encompass every element of local or national infrastructure usage and open it up to too much democratic influence. Having the populace directly choose how their tax is utilised, even on a limited level, is not political acceptable, as yet.
This resistance to hypothecation has extended to the application of lottery player choice, to provide a direct link to how the lottery money is spent. This had been mooted by Virgin, in its bid to take over the running of the lottery but establishing this hypothecation has so far been fought off.
This direct linkage by hypothecation is not what any government would want but at the same time the funding stream does urgently need to re-establish some element of connecting the money paid by the people to the goods and services which are available and that are used by them, a process that was potentially offered in a limited way with the defunct POLL TAX.
So how do we pay for local services?
Tax on property, VAT and PAYE is very effective, and is an easy collectable mechanism, yet they are not entirely fair and made more perverse with adjustments driven by political dogma. A number of surveys have shown that over the past 30 years the tax take has moved to fall more heavily on low-income groups. As the household demographic economics change, it is exacerbated by the growing differences between remunerations for effort. The rich have got substantially richer at the expense of the poorer. Regional wealth is still polarising and the cost of home ownership has risen with council tax band rated based on property value only. The effecting parameters have all been rehearsed before with some elements moving to the fore: -
Social housing no workers state supported.
Poor, no job, no assets, state supported
Owner Household with high income.
Owner Household + (partner?) Low or fixed income, or retired.
Rented accommodation.
The variable total amount of tax taken from dissimilar areas.
The density of private / commercial property / agriculture in a given area.
Inequitable rated bands.
North-South differentiation (for example)
Political expediency.
Translated as: - asset and cash rich, cash rich and asset poor, asset rich and cash poor, asset poor and cash poor, vote catchers dogma.
As the nature of the UK economy has changed and the way individual wealth holding has shifted, paying for local services becomes more unresponsive to the ability to pay. Had all direct income and corporate tax remained at its pre 1970’s level with the addition of new revenue streams, there may not have been the problem of funding state spending that we have now have and income tax would still have been the most effective and efficient way of responding to change. Today though, with the prominence and clear rise of propagated individualism, independence, self-reliance and self-interest, and the insistent drive for low tax, raising any tax seems to be a political and social anathema. It is patently clear however that a major change to funding local or national spending is becoming inevitable.
How would this change work?
It is most unlikely that any direct hypothecation will be fostered as a means of funding state spending. Perhaps though there should be greater scrutiny of how and why tax is raised, as it seems that we the people have very little influence on the application of national budgets, however an element of obvious hypothecation may be a way of allowing some control.
Although nationally hypothecation may be a NO WAY word it might work on a local level, after all there is already police and parish council precept, environmental levy (tax) and separated water rates. So in paying for local services the answer may lie in a mixture of: -
A property tax and hypothecated service charge tax.
Alternatively there could be scope to introduce a property tax based on the size (by sq.ft.)of the property, not on the value of dwelling, property owned or rented and land ownership.
Or bespoke local income tax.
Or do we continue work on the basis of a purely wider banded property tax, or progress it based on income or both?
Such a change in paying for local service cannot ignore one element that has gained increasing political clout at the expense of the voting majority, Business Rates. As Business rates have been effectively frozen over the past few years, it might be argued that the public are subsidising businesses that still derived the same notional benefits from an area and the infrastructure that has been provided by us all, why should that relief continue as domestic rates increase?
One favoured system would be to abolish rates in favour of a fixed land tax, together with a local income based tax collected via PAYE and a local hypothecated service charge. It must be possible to have a system that is flexible enough for people to afford to pay for local services and modify it as their circumstances change and offer some element of engagement with public control.
The problem of paying for local service is exacerbated with the problem of forecasted declining pensioner’s income, or those on a fixed state pension, falling private pension or perhaps people with no pension or income. As the population is getting older and there is an existing demographic deficit, there is already a talk of people working beyond the current retirement age of 65 to maintain a diverse work force, help fund the following generation and the twisted pension gap. Unusually over the past 2 decade the trend has been for some people to seek early retirement at around 55, or indeed are being forced to, due to the culture of ageism. This early retirement process ignores the cultural change that has taken place to the attitude of ‘work’, the poor ethos of the working environment and the actual ability or desire of people to work beyond some ‘acceptable’ age.
To help pay for the local / state service something dramatic needs to be done to make it attractive for people to work for as long as is feasible. An additional suggestion is to have direct tax reduced at the age of 65 to 10% on all earning (excluding pension if any) up to say £25K or based on the average income level but only up to this income band. Those whose income exceeds this band should not benefit at all from the 10% tax reduced take. This would help keep pensioners ‘economically’ active and perhaps linked to some of the changes above, help them continue to fund local services thus minimising rate revolts.
The following is an extract of the VOA site regarding the forthcoming rates revaluation and I have taken the liberty of inserting italic points for emphasis.
About Council Tax Revaluation.
“Under the council tax, all homes in England are currently placed in one of eight value bands, based on their open market value on 1 April 1991. (Which subsidises businesses and high valued property) It is not sustainable (for the government) to raise tax indefinitely on the basis of 1991 property values (due to diminishing tax value take) and so the Local Government Act 2003 provides for a revaluation to take effect from 1 April 2007, for which work on the revaluation of all 22 million dwellings (not businesses) in England should start in 2005. Under these proposals, council tax bills (will rise) based on 2005 property values will first issue in 2007. Thereafter, the Local Government Act sets out that there should be a revaluation every ten years (unless politically expedient). No decisions have yet been reached by the Government on whether, and if so what, revisions (of course there will be) should be made to the level and number of council tax bands. Those decisions will be informed by the outcome of the review currently being undertaken by Sir Michael Lyons due to report by end of 2005” (after the next election).
Website: http://www.voa.gov.uk/
Whatever steps are taken, one thing is certain, the resistant attitude of having to pay tax for the social good and the expectation that tax can continue to be reduced, has to change. It has to be seen to be much fairer least we continue down the path of beggar thy neighbour and eventually no one wants to pay for any universal services.
P. 4.7.04
posted by Renot at 7:56 am
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