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The truths they don't want you to read....

Tuesday, March 11, 2008

Local Income Tax

I previously blogged on this just before the elections when options were still up in the air.

With the announcement of a National Local Income Tax at 3% the tables in which I highlighted the comparative costs are still valid.

With one major exception.

I have not included the impact of Council Tax benefit on those who have the lowest incomes, and I suspect that many of the poorest off will have to pay NLIT when they currently pay little or no Council Tax. I'm afraid that the calculations are too complex to put into one simple table, but I am trying to see if I can link to a more detailed analysis.

There is one huge, enormous, loophole in the whole scheme.

NLIT applies only to earned income, and not savings or dividend income. So all directors of small family companies will stop drawing salaries and will start taking dividends and see their payments fall from £2,000 per annum to virtually nothing. You could be earning £1,000,000 in investment income every year and pay nothing into the pot for the services you use.

Fair? Not in a million years.

As the even the moderately rich can avoid NLIT at the expense of those on PAYE - and especially those at the bottom income quartile - expect the scheme to have to change dramatically over the coming years.

Although Brian Taylor thinks that it will not get through Parliament as the SNP and LibDems together do not have a majority, he obviously hasn't realised that the Tories will support this, as it is their voters who have most to benefit from this.

Expect to see the LibDems vacillate like crazy as they work out who will win and who will lose from these proposals, and - too late! - work out that they are going to get blamed by the losers whatever the outcome.

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