OK, suppose we reformed the relationship between central and local government in the UK by switching the proceeds of one major tax from central government to local government, which should it be? Switching income tax (£250bn) would obviously benefit richer areas at the expense of poorer. My hunch is that switching VAT (£162bn) would be a better idea.
@DavidPenington@RichardJMurphy@thecommongreen maybe. But places with very dispersed populations have higher costs of service delivery than places with denser populations, so it still doesn't come out equitable.
Indeed, of course, what even is 'equitable' is a political question. Those of us who live in sparsely populated places have real benefits in amenity which simply aren't possible in urban areas.
@simon_brooke@RichardJMurphy I believe (though can't quickly confirm) that EU rules prevent devolution of state or municipal sales taxes (VAT has to be the same across the whole of a country) but that wouldn't prevent a calculation of VAT raised in each local authority and some sort of fiscal framework to assign it.
However, post-Smith Commission when the UK tried to do that to Scotland, it proved logistically impossible.
@simon_brooke@RichardJMurphy (Sure, Scotland is no longer currently bound by EU rules, but I don't think it'd be politically possible for pro-EU, pro-Indy parties to support a tax they know they'd have to drop upon independence and EU re-entry.)
There's a House of Commons briefing on local government finance here, but in so far as I can see it does not give a total for "settlement funding". However, average settlement funding appears to be about £200 per person, so it looks to me as though total settlement funding across the UK is very roughly £14bn, or roughly 10% of current VAT take.
(NOTE: this number looks improbably small to me, I may be very wrong)
But assuming I'm right, if VAT were either paid entirely to the local authority covering the place in which a good or service was CONSUMED, or apportioned between central government and that locality, then it should be possible to have local government self financing without central government grants.
Note that the word "consumed" is doing a lot of work in the sentence above. >>>
Where a company, for example, buys widgets which are used by its service engineers all across the country, that's usually one sale on one invoice which is handled by one accounting department in one large city, even if none of the widgets are consumed in that city.
If all the VAT from that one sale were assigned to that city, that obviously would not be helpful. But assigning it to where widgets actually would be consumed is an additional accounting step that businesses would resist. >>>
This is quite possibly a silly idea anyway. It would be really awkward to have different rates of VAT in different localities, so local government would still not effectively have power to set its own tax rates. And in any case the better solution to independent local government finance is progressive property and land taxes. However, given how resistant politicians in the UK are to any tax on wealth, the "local VAT" idea might be a reform which could be implemented.
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