Poorer households worse off, but richer gain from council tax freeze

UP to 1.75 million Scottish households will be worse off under the Scottish Government's flagship policy of freezing the council tax, The Scotsman can reveal.

Those living in homes in bands A to D will lose out, according to figures presented in secret to MSPs yesterday.

Professor David Bell, of Stirling University, has calculated that most of the 1,751,000 households in the four lower council tax bands will be between 18p and 30p a week worse off.

Although the amount is tiny, it runs directly counter to the SNP Government's claim that everyone will be better off under the freeze.

The calculation is part of a detailed academic study which also shows that freezing the council tax will help the better off at the expense of the poor.

In a paper submitted to a private meeting of Holyrood's finance committee yesterday, Prof Bell revealed that people in houses in bands F, G and H "gain the most from a council tax freeze".

Prof Bell, the official adviser to the finance committee, said an economic model which his department has pioneered, showed this was because households in bands A to E received council tax discounts or benefits.

He added: "Because their weekly council tax bill is small or zero, they have little to gain from a freeze on council tax. It follows that it is largely the more affluent individuals that gain from the council tax freeze."

The findings so angered SNP members of the committee that they forced the postponement of a plan to publish his paper in full yesterday.

However, a copy of the analysis on the council tax was passed to The Scotsman and Labour leapt on the finding that the richest would benefit most.

The findings bluntly contradict the Scottish Government's explicit pledge to "reduce disparities between rich and poor", made in their economic strategy. Published on 13 November, it said: "...there has not been an explicit target to reduce disparities between richest and poorest. In order for Scotland to be fairer, increases in wealth must reach those on the lowest incomes.

"Therefore, our target will be: to increase overall income and the proportion of income earned by the three lowest income deciles as a group by 2017."

Calculations by this newspaper show that people on the average Band A council tax rate of £766 a year for Scotland, will gain £151 over a three-year freeze. However, for a band H, where the average bill is £2,299, the gain will be £452 over three years. Both figures do not take into account the complex effect of council tax benefits and discounts.

Andy Kerr, Labour's local government spokesman said: "The SNP presented their council tax freeze as a policy that would help those most in need.

"This leaked report makes clear that the freeze does the opposite. It makes clear that it is largely more affluent people that gain from a council tax freeze."

A source close to John Swinney, the finance secretary, said: "The [Scottish] Government has not had sight of any such point of view."

The source said that "interestingly" the Burt Commission, which looked at options for local taxation, concluded that the Council Tax "has a disproportionate impact on people on low incomes, who therefore stand to gain most from a freeze".

First step towards controversial plan for local taxation

FREEZING council taxes across Scotland is the first stage of the new Scottish Government's plan to bring in a local income tax.

The SNP went into the Holyrood election with what it believed was a vote-winning promise to scrap the council tax, which it claimed had risen by 60 per cent under the Labour- Liberal Democrat Scottish Executive.

The SNP proposed to abolish what it described as the "unfair" council tax and replace it with a local income tax, which the Nationalists said was fairer as it would be based on earnings.

However, even in opposition the SNP recognised that there would be problems introducing the new system, and pledged that as an interim measure they would freeze the council tax. Doing that has cost John Swinney, the finance minister, considerable sums of money - and political capital - as he struggled to win the agreement to the plan from Scotland's local authorities.

A meeting of the 32 council leaders earlier this month failed to endorse the freeze, merely noting that the £400 million increase in funding for next year, to £11.1 billion, was the best financial deal possible in the circumstances from the Scottish Government.

Introducing a local income tax will be even more difficult. The SNP has said that it will be 3p in the pound across Scotland, laying itself open to the charge that it is a national rather than local tax.

The Scottish Government will also have to negotiate with Westminster over the council tax benefit, which is the responsibility of the UK government.

UK Labour ministers have said that the £380 million in benefit which comes to people in Scotland will not be paid if the council tax no longer exists.

SNP ministers claim the money is part of support for local government in Scotland and should come to them to help fund the new tax.