The divisive properties of a local income tax

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It is good to see one party putting a genuinely local issue at the centre of its local election campaign, and the Liberal Democrats' promise to abolish council tax is a potential winner among the millions who believe that council tax has risen too fast and is spent unwisely and inefficiently by profligate councils.

It is good to see one party putting a genuinely local issue at the centre of its local election campaign, and the Liberal Democrats' promise to abolish council tax is a potential winner among the millions who believe that council tax has risen too fast and is spent unwisely and inefficiently by profligate councils.

But wishful thinking is one thing; hard reality, quite another. If you abolish the council tax, you have to find a system of local financing to replace it. The Liberal Democrats favour a local income tax which, they say, would be fairer and more efficient than the council tax as currently levied. It would be neither.

A local income tax system would spawn a bureaucracy even more prolix than the one needed to administer council tax. As to fairness, this is not as evident as Mr Kennedy and his party number-crunchers believe. They argue that those on low and modest incomes are would be better off being assessed according to their income. Only 30 per cent, they say, would lose. Certainly, the current system has its inequities: the elderly single people or couples who use few council services but live in big houses arguably pay more than their fair whack. But allowances are made for single occupancy, and those affected have part of a solution, however unpalatable: to move to a smaller property. A local income tax would provide no incentive for people to move, exacerbating the shortage of family homes.

The longer-term social effects could also be divisive. Those below the threshold would pay neither national nor local tax; the desirable principle that everyone should have a stake in local services by paying something would be lost. The "rich" 30 per cent would have an interest in moving to low-tax boroughs, raising house prices in such areas. The differences between affluent and other areas would become almost as pronounced as in the US, where rich areas grow richer, poor areas, poorer - and local taxes are highest in the poorest areas.

There is no easy solution to the council tax conundrum. More effective distribution of central government grants, coupled with improved stewardship of existing resources may be boring, but it is the best that can be done.

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