- Alan Smith considers paying tax
In the United Kingdom, local government is, in essence, the local administration of national policies. The structure of councils of various types and their powers and duties are established by Acts of Parliament. Each council must do certain things and may do other things. Councils are financed in three ways: grants from the central government based on the responsibilities they have been assigned; locally raised taxes; and fees for certain services. This can lead to tensions between national government and local government when, in times of austerity, the national government reduces the grants, leaving local government to bear the responsibility for any reduction in services.
In general, taxation is based on the principle that the rich should pay more than the poor to finance services that are funded collectively. However, a simple wealth tax levied every year on everyone would be impracticable because of the need to calculate each person’s wealth: in practice, at a national level, taxes on wealth are limited basically to death duties. National taxes are aimed mainly at the flow of wealth, looking at each person’s income and expenditure where the transfer of wealth is expressed in monetary terms.
On the other hand, local taxation is based on property because property is about the only thing that cannot be moved from the jurisdiction of one council to that of another council where the tax rate is lower. Historically, there was the rating system. In the late 1980s, this was replaced by the community charge, otherwise known as the poll tax. In the 1990s, after the community charge turned out to be the fiasco that many said it would be, it was replaced by the present council tax, similar to the old rates system but one in which properties were grouped into a small number of bands.
All systems of taxation cause problems when they are called upon to bear too high a burden. When the marginal rate of income tax is above 50% the taxpayer feels that ‘the government is getting more of my wages than I am.’ In this context, National Insurance deductions count towards income tax. Similarly, when the VAT rate is seen to be too high, some people feel encouraged to conduct their transactions without bothering to inform the authorities about the details. This is called tax evasion, not paying taxes that the law says are due, as opposed to tax avoidance where people do not pay taxes on, for example, alcohol and tobacco by not purchasing those commodities. I mention this elementary distinction because, judging by comments made by some Oxford alumni, it does not appear to be covered by the PPE syllabus at that university.
The problem caused by the property taxes levied by councils is that the value of a person’s property gives no indication of the liquid wealth he possesses to pay the tax. In the 1980s the prospect of a recalculation of rateable values with consequential rises in the rates that a number of people would pay led the Thatcher government to propose the community charge. Under this system, everyone, with limited exceptions, in a particular council’s area would pay the same amount—which led to its being called the poll tax.
The basic objection to the poll tax was that it was essentially unjust. From deep within the Anglo-Saxon subconscious the feeling arose that ‘this isn’t fair dealing’ and this feeling increased the natural tendency to evade it.
People generally would have been happy to pay a proportionate amount of tax towards services for the common good, whether or not they, personally, would have benefited from them. Similarly, they would have been quite prepared to pay a standard fee for a ticket to, say, Covent Garden or the FA Cup Final. But, as Churchill once said of Sir Alfred Bossom, the poll tax was neither one thing nor the other.
The introduction of the poll tax provoked considerable opposition. It was relatively quickly replaced by the council tax system we have today. The policy of austerity in the past few years led to restrictions in council tax rises, although there were resultant strains on the services provided.
Now it seems likely that the forthcoming financial year will see council tax rises on a larger scale, once again putting a strain on local taxes. What should be done? There does appear to be a clear answer. We should plan to change in a reasonably short period to a system in which those policies that the government decides must be provided by councils should be financed totally by government grants while those policies that the government says may be provided by councils should be financed by locally raised property taxes.