Too Taxing for the Daily Mail

According to the Daily Mail, the ‘real’ North-South divide in Britain is not about income or opportunity; it’s about how much Council Tax you pay:

Council tax has risen up to three times faster in the South than in the northern towns of Labour’s heartlands, figures show.

In the most tightly squeezed cities and districts – mainly Conservative controlled areas – the tax burden has gone up by more than 150 per cent in a decade.

But the most favoured cities have seen the tax they pay go up by only 50 per cent since the party came to power in 1997.

The breakdown comes from figures disclosed by ministers in parliamentary questions, which show how much money has been collected by different town halls.

To help illustrate the Mail’s economically illiterate point, the article includes this ‘helpful’ table showing the percentage increase in Council Tax revenues in the local authorities with the highest and lowest revenue increases in the last ten years:

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It’s sooooooo unfair, isn’t it, and the Mail will thcweam, thcweam and thcweam until its thick about this, even though it figures are complete and utter rubbish.

The figures given are for increases in Council Tax revenues – how much each council rakes in over the year, in total, and as a local banded property tax the amount of revenue it generates will vary considerably according:

a. to the number of households in each area paying the tax and how this changes over time,

b. the proportion of properties in each band in that particular area (the greater the proportion of higher band properties in an area, the greater the level of receipts from the same percentage increase in the tax rate); and,

c. (possibly) the number of local residents receiving Council Tax benefit – it’s not clear from the article whether the Council Tax receipts referred to in the article include or exclude Council Tax benefit payments.

Population Demographics

Of the twelve councils listed as having the lowest increases in revenue, internal migration data for 2004/5 & 20055/6, compiled by the Office of National Statistics, shows eleven to have experienced a net outflow of population, with Birmingham showing the largest fall in population over the two years (15,600). Only one council (St. Helens) shows a net inflow of around 200 individuals. The average decline in population across the ten council areas over the two years was around 2,500 and as it tends to be single persons and couples without children who are the most mobile, particular in terms of relocating from area to area, quite a high proportion of those leaving these areas will have been Council Tax payers.

Looking the same data for the ten council’s with the highest increases in council tax receipts, these show an average net population outflow over the same two year period of around 400 people per council but the bulk of this outflow is derived from just three of the twelve councils listed, Westminster, Tower Hamlets and Peterborough, which account for 94% over the total 12,700 fall in population across the five councils in this list showing a decline in over the two year period. (Kingston Upon Thames and the Isle of Scilly were the only other councils to show a fall in population – 700 and 100 respectively).

Overall, the population of the twelve local authorities with the lowest increases in revenues fell by 30,500 over the two years and while the fall across the 12 councils with the highest increases fell by 4,200 in total, in the seven councils which had a net inflow (all largely rural areas) the population rose by 8,500.

While we’re dealing with the demographics its also worth noting that each of two list contains one council which doesn’t fit the ‘North/South’ divide argument; Bristol, on the low revenue increase list, is of course in the South-West while Hambleton, on the high increase list, is in Yorkshire. What the internal migration data also shows, quite clearly, is what we already know to be the established pattern in population movements and economic mobility within the UK; the urban centres of the North, Midlands and even the South West are losing the more economically mobile elements of their local population to the South and South-East, where incomes are higher, while London is losing part of its wealthier, economically mobile population not just to the commuter belt to but also to rural areas, and part of its less economically mobile population to the outskirts of Greater London as redevelopment and the rising cost of living in the capital, especially housing costs, force the less well-off out of Inner London.

Shifts in population over time will impact on Council Tax revenues – while these are unlikely to fall over time, because the rate at which its charged increases each year, the rate at which a council’s total revenue for Council Tax will increase is sensitive to crude population changes simply because increases in revenue from rate increases will be partially offset by losses in revenue due to a declining population and, therefore, a declining number of tax payers – and that’s before we factor in the effects of differences in the proportions of housing stock in each Council Tax band.

Council Tax Bands

The basic equations here are very simple:

a. the higher the proportion of of houses in the higher Council Tax bands, the more revenue a council will generate per household, and

b. the higher the proportion of of houses in the higher Council Tax bands, the faster a council’s total revenues will increase over time because a uniform percentage increase across all tax bands will yield a higher return on a higher banded property than it will on a lower one.

The data is also extremely straightforward.

Taking averages across the 12 councils in each group, for the group with the lowest increase in revenues, 64.28% of their total housing stock falls into either band A or band B, the two lowest bands, 27.22% falls into either band C or band D, D being the band most often quoted as an ‘average’ for the purposes of making comparisons, and a mere 8.5% of properties fall in Bands E to I.

For the group with the highest increase in revenues, a mere 31.44% of housing stock is classified as Band A or B, 33.77% as Band C or D, while 26.46% is classified into Bands E to I. Four of the twelve councils in this group have less than 5% of properties in Bands A or B (City of London, Westminster, Isles of Scilly and Kingston Upon Thames) of which three have more than 60% of their taxable housing stock classified as band E or higher; City of London (70.65%), Westminster (61.12%) and the Isles of Scilly (70.67%). Of the twelve councils included on the high revenue increase list only two, Peterborough and Fenland, have Council Tax band profiles in line with the the average profile of the councils with the lowest revenue increases and these are both special cases at the present time as there are known issues with demographic data used by central government to calculate their levels of revenue support grant arising out of a sizeable influx of migrant agricultural labour from EU accession states.

There is here, a simple and yet inescapable fact, which the Daily Mail is concealing from its readers, and that is that no matter which system of local taxation you apply; property taxes, local income tax, even a flat tax, you will always generate more revenue, more quickly, from those areas in the higher revenue increase list than the lower increase list because (allowing for the special cases of Peterborough and Fenland) these are high income areas with a relatively wealthy population.

The Poverty Trap

Its not clear at all whether the Mail’s figures include or exclude Council Tax benefits from their revenue figures, so this needs to be factored in as another possible contributory factor.

Again, the data is relatively straightforward to understand. Across the 12 areas with the lowest increase in revenues, the average percentage of the local population in receipt of a ‘Key Benefit’ (for people of working age these are Jobseeker’s Allowance, Income Support, Incapacity Benefit, Severe Disablement Allowance and Disability Living Allowance, while for the over 60’s you can take out JSA and Income Support and add Minimum Income Guarantee, State Pension and Attendance Allowance to the list) runs to 19.25% of the local population while in the 12 areas with the highest increase in revenues the number receiving such benefits is only 10.08% of the population. The relevance of this, of course, is that households receiving one of more of these key benefits are also likely to receive some measure of Council Tax benefit which, if not included in the Mail’s figures, would contribute to the marked disparity in the increase in revenues between areas.

Where that takes us is to the perennial problem which arises when dealing with local taxation and its relationship to local services – poorer areas generate the least amount of tax revenue – not just from council tax but across all taxes – and yet, because of the social effects of poverty, have the greatest need for poverty-related social services, the highest rates of poor health and life-limiting illness, the highest crimes rates etc. and this is true no matter which political party is in power provided you live in a society which both taxes the rich more than the poor and which provides services on the basis of need to people who could not otherwise afford to provide for themselves.

Such a system will, of course, ‘favour’ any political party (or parties) which draws its support from poorer urban areas, which is why the current system ‘favours’ the Labour Party and, to a slightly lesser extent, the Liberal Democrats, irrespective of whether or not the system is deliberately loaded in anyone’s favour.

No Daily Mail article on taxation would, of course, be complete without a quote from a protest group, although unusually, on this occasion, its not the Taxpayer’s Alliance that got the call – guess even they wouldn’t put their name to this kind of economically illiterate rubbish, so instead we get a group called ‘Is It Fair?’:

Christine Melsom, of the Is It Fair? council tax protest group, said: “If you live in the country, prices are much higher and you get squeezed every time. Council tax bills are just part of the pattern.”

The ‘Is It Fair?’ protest group favour the replacement of Council Tax with a Local Income Tax that, if levied at a flat rate as is the proposal in Scotland, would still result in rich households paying more tax than poor ones and richer areas generating higher revenues than poorer ones. Depending on exactly how the tax is configured it might shift the overall burden of taxation a little further towards wealthier tax payers although by exactly how much is open to question as income-based taxation regimes are far more tractable to tax avoidance schemes than property-based taxes. It’s a lot easier, after all, to hide income from the taxman than it is to hide a house, which is one of the main reasons why governments have always favour levying taxes on property, because they’re a damn sight more difficult to avoid.

Or at least that would be the case with a straight Local Income Tax scheme similar to that favoured by the Liberal Democrats, although if this paper – which the group pitched to Eric Pickles, the Tories Shadow Local Government Secretary – is anything to go by, then that’s not quite what this group has in mind as this seems to propose a hybrid regional banded system based on ‘average income’ under which those with a disposable household income of around £45-50,000 pounds a year would pay around twice as much tax as those with a disposable household income of around £5000 a year, so, as usual when it comes to the Tories, if you’re on a low income then you’re going to screwed for around 17% of your disposable income while up at the start of the top end of the scale, you’ll be seeing less than 4% of your disposable income going to pay for local services, a figure that will fall, of course, the more you earn.

The paper doesn’t state whether this is based on gross disposable income, which earned income plus benefits less taxes on income and wealth, national insurance and payments for life insurance and pension contributions or net disposable income, which takes out primary housing costs (rent/mortgage).

Using average incomes as a baseline for calculating local tax liabilities does solve the ‘problems’ caused by the taxation of property, it just creates a whole new set of demographically driven problems – for example the less well off living in rural areas can expect to see their tax liabilities rise as more and more of the wealthy, who work in London, relocate to rural areas and drive up the average income, and if you’re economically active and work for a living then don’t even think of moving to an area with a large elderly population because, again, their lack of income means you;re going to get screwed.

The underlying, and rather stupid, logic which underpins this campaign is best summed up by its attempt to define ‘fairness’:

“Fairness” is a very subjective concept lying mainly in the mind of the contemplator. However, we believe that the vast majority of the voting public would subscribe to the following two statements of principle:

1. People on higher incomes should not, on average, be required to pay less tax in total than the tax that those people on lower incomes are required to pay.

Oooh look, its the missing word round and the missing word here is ‘income’ as in ‘[p]eople on higher incomes should not, on average, be required to pay less income tax in total than the income tax that those peoplw on lower incomes are required to pay.

Taxes on income are taxes on income, taxes on wealth are taxes on wealth and taxes on consumption are taxes on consumption, they are not in themselves interchangeable and how you prefer to configure the three strands of personal taxation is a value judgement not an unequivocal statement of fairness. As someone who works for a living, I might well consider it unfair that I be expected to pay over more of my annual income in tax in order to fund tax breaks for well-off elderly home-owners especially when the UK already spends around 44% of the 27% of GDP that goes on social protection to pay for pensions and social protection services for older people and the most recent figures I saw (2005, I think) put the cash figure for this at £133 billion for a year in which the Inland Revenue’s total income tax take was £131 billion.

(Yep, the over-60s really do consume every penny of income tax paid in the UK and then some on top – by way of contrast, spending on social protection for children and families in the same year ran to about £20 billion…

Hey DK, there’s your quick and easy route to abolishing income tax – just cull the elderly [and in case any particular stupid Tories are looking in, I am joking here])

Based on figures like that, I think some might think that we already spend quite enough on our thriving gerontocracy and that if you want any more cash then you can go get yourself an equity release plan and keep your wrinkled mitts out our wage packets.

2. Local taxes raised to finance local expenditure should, in general, be higher in those areas where local council expenditure is higher, (and therefore where, presumably, services are better), than in those areas where the local councils are more frugal.

Of course its the ‘where, presumably, services are better’ bit that marks this guy out as a bit of an idiot. Noooo, local council expenditure will be higher in areas where there is the greatest demand for council services, especially those relating to poverty and its social costs and consequences. FFS, explaining this make me feel like I’m Father Ted using a plastic toy cow to try to explain to Father Dougal the difference between ‘small’ and ‘far away’.

After that explanation you can easily imagine the response, the trembling bottom lip leading into ‘b-b-but that’s not fair’ – well let me just explain that there are actually two main reasons why ‘social protection’ is called ‘social protection’. There’s the nice reason which entails protecting poor people from the worst consequences of living in poverty, which we call being a ‘good citizen’, and then there’s the not quite so nice reason of protecting the well-off from the consequences of living close to a whole bunch of seriously pissed-off poor people, which we traditionally call ‘not getting a pike stuck up your arse’. It’s this second definition of social protection that routinely seems to escape many of those on the political right, the one in which paying out a bit of tax to keep poor people above the breadline protects them from being the first against the wall when the revolution comes and if you want to know what happens when you pay just a little too little attention to this latter definition of social protection then try looking up words like ‘Jacobin’ and ‘Bolshevik’, or ‘Louis XVI’ and ‘Tsar Nicholas II’ in your nearest Encyclopaedia Britannica. Or if your prefer things put in somewhat more philosophical terms, the difference between Nozick’s minarchist nightwatchman state and Hobbes’ Leviathan is about three square meals.

The bottom line here is that unless you’re planning major cuts in local services – which is generally the underlying idea when people start talking about Council Tax and its perceived relationship, or lack of relationship, to the services they receive, the ‘fuck the poor as long as I get my bins collected’ kind of mentality, then you’re not actually talking about cutting taxes you’re just looking for ways to offload as much of your share as possible onto someone else and if that’s what you want to debate then fine, just be honest where you’re coming from and quit pretending that you’re motivated by anything other than your own venal self-interest.

  • Sam

    Gotta love the argument from the Daily Mail: Conservative councils have raised council tax the most, therefore it must be Labour’s fault.