Crude localism

There is something a little blunt in giving people the right to veto council tax increases. While a improvement on what we have at present, real localism ought to allow people a slightly more refined way of setting local tax and spend options.    

Eric Pickles is a formidable advocate of “radically extended direct democracy”. He ought, therefore, to look at devolving control over existing central government revenue streams, rather than just a veto over council tax hikes.  Localising fuel duty?  A local sales tax in place of VAT?  Perhaps even a local land tax? 

At present £3 out of every £4 local councils spend comes via the Treasury. Not only does this allow Whitehall to micromanage town halls, but it means that any right of veto people are given will be a judgement passed on the margins.

To give people real local control over council budgets, as opposed to a veto over the periphery, ministers are going to have to overcome those vested interests in the Treasury who’d loath any such moves.

With Lib Dems - who've been talking about this for years - now in government, and the trauma of the poll tax a distant memory, I'd have thought there's a good chance the Coalition might be willing to be bold.

Local councils have also been given the right to beg money from a regional growth fund, presided over by Lord Heseltine. Hummm.

Rather than asking the Lord H’s of this world for taxpayer cash, localism ought to be about local town halls having to persuade local residents to part with their money, in return for delivering certain levels of local service. 

Some civil servants and SpADs can be relied upon to tell ministers it can't be done.  Ministers might want to read this and see that it can.

Posted on 30 July 2010 by Douglas Carswell

Comments

there is one problem douglas, not with the theory, but the practice.

it's one thing to assert in opposition (or from the backbenches) that local councils should be free from central government's control. you're advocating taking someone else's hands off the levers of power.

once you're a minister, and it would be your hands coming off the levers of power, it's different.

jonathan freedland's bring home the revolution, written when labour was in opposition, was one of the first tracts to advocate the end of quangos and implementing radical localism. once labour was in power, freedland became an arch centralist and defender of the quango state.

there's no easy solution to this paradox.

Posted on 30 July 2010 12:15 by dave

I agree with some form of local taxation in principle.

I would prefer to see a proportion of VAT revenue go to local government (to replace the centeral government grant) and letting them alter the rate by a few percent. This would be similar to the local US sales taxes.

The problems with VAT are with EU regulations and the fact that poor areas won't receive as much money as rich areas so I doubt if it would work in practice.

I don't like the LibDem answer of letting them have a local income tax because it would effect employment. The poorest areas have the highest spending, so higher tax would make unemployment higher in the areas that need jobs the most.

One thing we can and probably should do is let councils keep their business rates.

Posted on 30 July 2010 12:45 by nonny mouse

I might be wrong on this, but isn't the existence of VAT EU mandated? COULD you (as still member of EU) change it from a centrally set and levied 'VAT' to a locally set and levied 'Sales Tax'?

Posted on 30 July 2010 13:03 by RedBull

I've always been a fan of the Lib-Dem's local income tax idea. Stronger local government would mean better local services (and frankly better councillors as many would be excellent councillors are put off standing in elections as they do realize its a rather pointless job).

Posted on 30 July 2010 13:13 by Mark Butcher

3/4 coming from central government.

Give them 100% from central government. Abolish council tax completely.

Then, give each area the same per head allowance. That way the rich areas subsidise the poorer areas.

Now, it's down to local councils. What value can you get from the cash, not how to stiff the tax payer. It's all efficiency. If you want to do more, become more efficient.

Not only that, but its far simpler. No barnett formula. No need to pay lots of people to collect council tax. ...

However, here's a question for you. If voters get to veto council tax rises, why haven't we been given the right to veto all tax rises?

Posted on 30 July 2010 13:17 by Nick

The real problem is that no one will draw a distinction between what is local government and what is a branch office of national government. We should separate the two. The Treasury should pay for local administrative outposts where needed and local government should make local decisions and finance them locally.

Posted on 30 July 2010 14:02 by Julian

Eric Pickles is doing good work. Almost everything he proposes is a move away from the local little Hitler and back towards the public servant. He's attacking the problem that local democracy doesn't work -- it is neither local, being made up mainly of people who don't represent the community; nor democratic, because the whole process is stitched up and inaccessible. More direct democracy is the answer.

There is one problem I can see with his idea of votes on massive tax rises. It's the "vote yourself rich" crowd; the people who don't pay the tax, but get a vote in local elections.

In some inner London boroughs, nearly all the electorate did not pay the rates. In consequence a council could gain popularity by jacking the tax up and up, with no negative consequence, because those who had to pay it were outweighed by those who stood to benefit.

I would suggest that only those who live in the community and will have to pay the tax should be able to vote on whether it be raised. That's just basic honesty, surely?

I agree that he should go further. But little by little.

I just saw the BBC lunchtime news report on this. Solid negatives, all along the line. Why do we have to pay a compulsory tax for lefty propaganda?

Posted on 30 July 2010 14:17 by Roger Pearse

As I've explained on more than one occasion, a local sales tax is unworkable in the UK. With the internet you tax based on where the recipient lives or the delivery address or where their credit card is registered. So unless every area is going to have the same tax rate ( so what's the point) the cost to business is enormous in terms of overhead.

Unlike the US ,the UK as a much smaller area you would soon see people taking delivery in a low tax area and then driving a mile or so to collect, you would have mailing addresses set up to register credit cards and pick up points

Please give me one workable example of how you could implement a local sales tax. Also explain what you mean by local.


By the way I am a fan of local control and local revenue raising but i just can't see how you would set up and manage a local sales tax in such a small country.

FYI Here is just a small part of the FAQ put out by Amazon re local sales tax collection.

http://www.amazon.com/gp/help/customer/display.html?nodeId=468512


Douglas, as a businessman struggling already under the burden imposed by idiotic politicians please don't add to it. I am vehemently against the EU but I have to say VAT is relatively easy to administer and works quite well.


Why not do this, reduce local government back to what it was originally intended to do and allow them to collect and retain council tax and business rates and to retain a % of vat collected by businesses in their region ( I'm assuming you are talking Borough Council level when you say local)

If you mean County wide then forget it , all bets are off where I live I would vote for full federal membership of the EU and the eurozone before I would let Kent County Council loose with any more of my hard earned

Posted on 30 July 2010 19:20 by libertarian

@ libertarian:

Quite the contrary, the internet helps by inducing a strong element of tax competition. Why is it a bad thing if people can literally shop around? Seems to work in New England, and they have the internet there.

Perhaps if everyone in your county had to pay the price of a high spending, wasteful council, local folk might, you know, do something about it? Vote in councillors willing and able to sort it out. Break down the fiefdom politics system, maybe? Rather than ineffectually blame Whitehall.

Can I suggest you read the paper to which the blog links?

Posted on 30 July 2010 19:41 by Douglas Carswell

I don't see how this can work. Round here the town wards are mindlessly labour and the rural ones are equally mindlessly conservative and a few liberals squeeze in the gaps. But there is virtually no effective local democracy, it's the same democratic deficit as we see in national elections. I would just as soon have central control than the local amateurs who inhabit regional councils.

Posted on 30 July 2010 21:17 by Woodsy42

It is fine to discuss ways of reducing the tax system on local councils, in effect to find ways of sweetening them. But they still remain high, and increase.
Wouldn't it be better to find ways of reducing council's statutory (i.e., Parliament therefore EU) demands for "improved services"?
Reducing Government demands automatically reduces the tax burden.
The problem goes away.
brgds.

Posted on 30 July 2010 22:20 by Peter Melia

By the way I have read your paper and that is why I disagree.

You state that the payment would be at the point of retail, sorry won't work on the internet or catalog or TV or teleshopping . In the US it's paid at the point of consumption and for your information the Connecticut revenue service for local sales tax collections, permits and exemptions runs to over 1,000 pages !

To pay tax in the council region of the purchaser in such as small place as the UK would be a logistical nightmare and burden for small businesses. In the SE of England a huge proportion of people live in one place but work in another, which tax rate do they pay when they buy a product over the net from France?

Oh and as you bought it up do you know that the following is the state of play in New England at the moment

Massachusetts has a 6.25% sales tax as of August 1, 2009, with numerous exceptions including (among other things): "food products" (but excluding prepared meals); residential water, gas, electric services; returnable containers, clothing and footwear up to $175 (for clothing over $175, tax is due only on the amount over $175 per item[71]); prescription medicines, prostheses and medical appliances or services; publications for use in education or religious worship; poultry and livestock, as well as their feed; fruit and vegetable stock for generating food for humans; tools, machinery, parts, etc., for use in agriculture; cloth or other materials used for making clothing; residential heat pump, solar or wind power system; items purchased with federal food stamps; the American Flag. An enacted change in 2006 taxes computer software that is downloaded for use in Massachusetts, whereas previously this was viewed as a non-taxable "service"

The other 5 states all have similar but different exemptions except New Hampshire which DOESN'T have a local sales tax at all.

By the way are you also aware of the following

The United States Constitution limits the power of the states to subjects within their jurisdiction. Jurisdiction over interstate commerce is reserved to the federal government. Nevertheless, a resident of a state with a sales tax who purchases goods from a place with no sales tax (or at a lower rate) might be subject to pay a "use tax"


As I said purely from a businessman's point of view a local sales tax in the UK would be a bureaucratic nightmare, a huge overhead and drive up prices outside of the tax regime.


Sorry, but we need to think of a far better way of raising local revenue and making politicians accountable to the electorate

Posted on 30 July 2010 22:37 by libertarian

Sorry to go on about this Douglas, but I think that the whole creditability of greater local democracy and revenue raising could be undermined by this proposal.

I found this Wiki entry about the undermining of local sales tax collection by use of the internet as a shopping channel. I think it reinforces what I said earlier

State governments rely on sales and use taxes for approximately one-third (33.4%) of their total tax revenue - or approximately $198 billion in FY2004.[1] Local governments derived 11.4% of their tax revenue or $44.6 billion from local sales and use taxes in FY2003.[2] Both state and local sales taxes are collected by vendors at the time of transaction and are levied at a percentage of a product's retail price.
A state may tax a transaction if there is some connection (nexus) of the transaction to the state. Thus if the seller or the buyer is located in the state, the transaction may be subject to the sales tax. The important question in the out-of-state seller context is not the state's power to tax the transaction, but rather whether the state can require the out-of-state seller to collect the tax from the purchaser.[3] While in such cases the buyer is required to remit a use tax to his or her state government, typically through the state income tax, in reality, consumer compliance with this requirement is quite low. Thus, contrary to what some commentators suggest, Internet purchases are essentially "tax-free" only in the sense that consumers are evading the use tax due on their online transactions.
Many observers suggest that the expansion of the Internet as a means of transacting business across state lines, both from business to consumer (B2C) and from business to business (B2B), threatens to diminish the ability of state and local governments to collect sales and use taxes.
The variation among the state and local governments in the administration of the sales tax is at the center of the Internet tax debate. The U.S. Supreme Court has ruled that the collection of sales taxes by remote vendors would be too burdensome; there are thousands of taxing jurisdictions, each with its own rates and base.
The Due Process[4] and Commerce clauses[5] of the U.S. Constitution limit a state from imposing tax liability or collection responsibilities on a business concern unless there is a substantial nexus or in-state contact established with the state. There is currently no statutory authority and scant case law on the subject of nexus and the Internet, but the U.S. Supreme Court has given considerable guidance in the analogous area of taxation of mail order sales.
The two major Supreme Court decisions in this area are National Bellas Hess, Inc. v. Illinois Department of Revenue,[6] and Quill Corp. v. North Dakota

Posted on 30 July 2010 23:06 by libertarian

My last take on this, you couldn't make it up, you really couldn't. Don't you just love politicians.

In response to the fact that Internet shopping in the US is to all intents and purposes tax free, the Democrat Senator for New England State of Massachusetts has proposed a new Streamlined Sales Tax system that HARMONISES and sets a UNIFORM tax rate and regulations.

http://news.cnet.com/8301-13578_3-20009603-38.html

I wonder if they've looked into setting up a national sales tax system called maybe VAT or something like that

Posted on 30 July 2010 23:14 by libertarian

are you taking the P*** tarzan who shafted his own party (before going in to arboreteums)does what?
if he's back ed balls here i come

Posted on 30 July 2010 23:23 by kein

nonny mouse - "The poorest areas have the highest spending".

Ahh, but therein lies a question. If higher spending stops areas being poor, why do we have so many poor areas? I've always found it interesting that the richest areas receive less spending and poorest the most. It always seems an advert to me that government spending doesn't make an area any richer.

Posted on 30 July 2010 23:41 by Mark M

@ libertarian:

So you're saying local sales taxes do indeed work in New England? Then why not try it in old England.

Posted on 31 July 2010 09:33 by Douglas Carswell

I just realised - we have an embyro version of local sales rates already. Small purchases (£<18 ish) sent from the Channel Islands are vat free. Some retailers (eg Amazon)already ship some small orders from there and other companies have set up there to take advantage of the situation.

Posted on 31 July 2010 10:50 by Woodsy42

Why not simplify the whole thing? Fund the police on a per capita basis from central taxation. Fund the schools directly on a per capita basis. That removes about half local expenditure. Free local authorities to raise the rest however they like. Taxes, bonds, lotteries, who cares?

Posted on 31 July 2010 11:00 by Backofanenvelope

Douglas,

have you not read anything I've posted. LST in say CT ONLY works if you buy a physical product from a physical shop in the town where you live. Any service provided or out of state purchase is to all intents and purposes tax free.

Therefore 1. As posted with links the US federal government, state legislatures and retail association of America VERY MUCH SAY IT DOESN'T WORK.

2. I thought you were pro business and free market Douglas, so I would suggest that you ask a few business owners, managers and operators what they think about this tax system and the effect on their operational overheads

3. As I've repeatedly told you it doesn't work for anything sold over the internet, as evidenced by the US Supreme Court.


Give it up Douglas, you are making yourself look a mug now.

I will gladly write you a paper on how to raise local revenue and bring about greater democracy but sorry LST is a dead duck in UK

Posted on 31 July 2010 12:50 by libertarian

A simple way of doing it would be to return income tax revenues to the county or local council in which the taxpayer lives and enable councils to give taxpayer rebates if they have money left over.

Posted on 31 July 2010 13:24 by Gareth

@Gareth,

Yes a reasonable idea. However consider this, in 2005 ( last year I can find audited figures for) Business rates raised £22billion in UK. So why not go back to the system we had BEFORE Maggie T changed it in order to PREVENT local nutters going on a spending spree as in Deggsy Hattons Militant Tendency Liverpool.

Let local councils keep revenues from council tax and business rates, it really is quite simple

Posted on 31 July 2010 15:37 by libertarian

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