Monday, March 03, 2008

The LIT Hits The Fan

Imagine, for a moment, that rather than reheating the school dinners prepared in a distant central kitchen each lunchtime, your local authority decided instead to invite some local food shop owners to operate out of their school dinner halls. The idea behind this would be to sell a healthy choice of meals and sandwiches prepared locally, which would be of a higher standard than the usual canteen fare.

In order that no-one loses out, the council decides to put all the money spent funding free school meals into a new voucher system, so that all previous beneficiaries of free meals may continue to buy food of equivalent value. Despite some initial concerns, the idea turns out to be very popular with pupils and parents alike.

Whatever you think of the idea itself, it would at least swap one system for another, while making sure that all monies in the previous free school meals scheme continue to benefit those they were intended to. However, imagine then that in a fit of ideological pique, the Government decides that since this renegade local authority won’t be offering ‘school meals’ any more, it won’t if it goes ahead be getting the money it used to for the provision of free school meals. Seems a bit rough, doesn’t it?

OK, let’s do another one. Imagine every police force in the country receives an additional grant from central government to enforce a nightime curfew on the under-18s. The initiative is supported with great gusto by the senior officers in some forces. However, other forces are less keen, and are reluctant to be seen to be ‘victimising’ the law abiding young.

Together with their police boards, these forces decide instead that the grants they receive for the curfew would have a much better impact on youth disorder if they were spent instead on school visits and mounting extra patrols at weekends. Miffed at the rejection of their pet project, government then decides to punish these forces by withholding the additional funding.

Both of the situations I’ve described are, of course, entirely fictitious. However, they do resemble very closely the situation faced by the Scottish Government in its dealings with Westminster over the withdrawal of attendance allowance following the introduction of free personal care. More recently, they resemble the weekend’s sabre-rattling from James Purnell over the threatened forfeiture of council tax benefit if Scotland proceeds with the introduction of a Local Income Tax (LIT)

"When there is no council tax then there is no council tax benefit," Purnell told Scotland on Sunday (As an aside, does this mean that if the LIT were simply renamed as the Council Tax, the DWP would continue to cough up?). However, council tax benefit comes via the Department of Work and Pensions and is paid for through general taxation, which, judging by the last glance I took at a payslip, people in Scotland are expected to contribute towards as well. It is designed to cover the Council Tax liabilities of those on the lowest incomes, and as such, is part and parcel of the local government financial settlement.

If Westminster was to bring in an alternative to the unfair Council Tax in England, the benefit money currently available would surely remain so as part of the overall local funding arrangements. For that reason, it would be no skin off anyone’s nose in Whitehall to allow this money to continue to come to Scotland to help finance a different system of local taxation, since we’ve already paid our share towards it.

Together with the ubiquitous ‘source close to’ describing the Scottish Government of acting like ‘big babies’ over the whole thing (seriously!), I think we can safely put this little skirmish down to Gordon Brown taking the huff and trying to show us all who’s still boss in Scotland. The irony is that having died in the last ditch defending the hated council tax at the last election, Labour in London is basically forcing its Scottish comrades to fight on exactly the same ground next time round as well!

I always expected Labour to go around picking fights with the Edinburgh administration while trying to blame the SNP – I just thought they’d be smart enough to choose their ground a little more carefully. I’ve no doubt there’ll be disagreements in the future where the respective jurisdictions of Holyrood and Westminster overlap, when the public will decide that the SNP is chancing it. This, however, I don’t think is going to be one of those occasions.


Anonymous said...

I think it's by no means obvious that the money currently expended on CTB should continue to be paid when CT disappears. It's arguable either way. On the "no" side - that cash currently subsidises the household budgets of the poorest. If it continues to be paid it will subsidise the tax finances of the better off.

Richard Thomson said...

Sorry - didn't see your comment till tonight.

It's obvious that the CTB money should continue to be paid for 3 reasons:

1. Scottish taxpayers contribute towards this benefit through general taxation. This shouldn't be affected by the system of local taxation in place.

2. It's unnecessarily bureaucratic and wasteful to tax someone then offer a rebate, unless there's no alternative. Why not use the money being paid for CTB to lift the payment threshold and exempt the poorest in the first place, especially since there's no correlation between the value of the house someone lives in and their wealth?

3. Even the Treasury regards CTB as being part of the Scottish block grant and has done since 1997. What's changed, other than that Labour is no longer in power at Holyrood, has set its face against the policy and retains the power to interfere from Westminster?

Finally, the argument that CBT monies deployed under LIT would subsidise the 'better off' is a novel take on the argument, I'll give you that. Does that mean you disagree with the argument that those with the highest incomes would end up paying more?