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14 February 2023

We need a reform of council tax, not a rise

Your ludicrous bill was decided when Rishi Sunak was 11 years old.

By Anoosh Chakelian

Most of the big English councils are putting their council tax up by 5 per cent. There are all sorts of reasons for this, which can mainly be boiled down to a long, painful shift of central government costs (and blame) onto local authorities, and an ageing population: social care budgets are covered by councils.

The council tax system is notoriously outdated. Homes are categorised by “bands”, according to how much they were worth at a certain point in time. In England they’re based on property valuations conducted in 1991 – 2003 in Wales. Rishi Sunak was 11 years old when the bands in England were set, and the average house price in the UK was £56,853.

A lot has changed in Britain since then, but housing inflation may well be the most acute economic and social trend of them all. By refusing to change the bands, successive governments have allowed council tax to become regressive and nonsensical.

Because council tax is effectively capped, richer individuals in London pay proportionately less than those living in places where house prices have not risen as fast. And poorer local authorities raise less in council tax because of higher numbers of residents eligible for council tax reductions, so they have to set the highest rates. Their residents also make greater use of council services.

As the accountant and economist Richard Murphy puts it: “At the lower end the charge behaves like a poll tax, with even the poorest property being expected to pay a fixed proportion of the sum owing by the mean property in the council tax bands. The result is that council tax features very heavily in the overall tax bills of the lowest paid in the country.”

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The tax is also levied on occupiers rather than owners, meaning tenants have to pay it rather than their landlords.

Instead of putting more and more pressure on local authority budgets, the government should focus on reforming the system to reflect the true value of people’s homes today. A property tax proportional to the present-day value of homes would both be fairer and raise the same revenue, according to analysis by the IPPR progressive think tank of properties in London.

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No one wants a council tax rise in the middle of a cost-of-living crisis. But at the heart of those unwelcome bills is a tax that makes no sense at all.

[See also: Cash-strapped councils not safe yet after Jeremy Hunt’s Autumn Statement]