End apathy: Make VAT a local sales tax

Article by John Blundell in The Scotsman

IN PAST centuries, governments stumbled along making up policies with little recourse to consultation beyond empty courtesies. Policy evolved through over-busy ministers taking the advice of their officials.

The pleasure of the Yes, Minister comedy series was its near perfect match with the daily reality. Political parties were largely empty vessels from which no minister seriously sought advice. The first time I can recall an independent commentator receiving praise for his ideas was William Pitt telling Adam Smith all politicians were now his pupils.

It was an elegant compliment but most politicians make their careers out of ignoring the wisdom of Smith, the Great Seer of Economics. They love to provide "free" services whether they be roads, schools or medicines. They love to regulate and tax. The last people to be consulted are those who will pay the tax.

Among the absurdities we have inherited is the council tax, by which we are all forced to pay for services we could all acquire better in the marketplace for a fraction of the cost. So muddled are local authority finances and responsibilities that our brains freeze at such a dreary theme.

Until the 1840s, councils raised their own funds. Now Whitehall has imposed so many duties on town halls that about 80 per cent of their finance comes from the Treasury. Is it possible to devise a system more likely to magnify irresponsibility and incompetence?

I had assumed the knots of waste and tedium could not be severed until I stumbled upon a new publication from the Adam Smith Institute, that trio of St Andrews graduates who are the modern heirs to the Kirkcaldy professor.

In Scrap Council Tax and Make VAT a Local Sales Tax, authored by Douglas Carswell, we have both the least sexy title I can imagine plus a simply brilliant idea to reconnect us all to our councils. A bonus to which the text does not refer is that as VAT is a European tax, this reform would throw large buckets of sand into the clockwork of the European Commission’s mechanisms.

The plan is pleasing: abolish council tax; convert VAT into a local sales tax and thus make councils responsible for their own budgets. We would all then take a more lively interest. It is shameful that only 37 per cent of Scots vote at local authority elections. It is also rational as our votes alter nothing.

I happen to retain the view that the poll tax was quite a good solution. The trouble was it got hijacked by the Civil Service and became oppressive.

The present position is intolerable. Councils depend on the Exchequer for three-quarters of their income. The notion of "local democracy" is a fraud across the UK, but doubly so when the Labour Party cabals control matters so tightly in Scotland. Tory and Lib Dem councillors have no separate ideas or policies but only do as the professional officers advise.

It had not crossed my mind that VAT could be converted into a sales tax akin to those deployed across the US and in other EU countries. This is a clear rejection of the often-floated project of a local income tax. The £64 billion VAT raises is almost precisely the £66bn spent by councils.

Roughly 17.5 per cent would be raised on local sales but every community would become critical of expenditures. Councillors seeking election to keep VAT rates low would be popular. Democracy, or perhaps we should call it responsibility, would awaken again. If households in Fife were paying, say, only 12 per cent VAT, those in East Lothian would surely challenge their 18 per cent levy. The poll tax alarmed many as those on the most modest budgets had the same bills as the wealthy. Part of the charm of a VAT/sales tax is that it only applies to those spending on goods.

Carswell argues that local police chiefs should be elected. I fear this might lead to "hang ’em and flog ’em" policies of the most populi