Lib Dem leader outlines plan to tackle unfair council tax on Essex visit

The leader of the Lib Dems has said redistributing government grants more effectively rather than council tax reform is the best way to overcome the unfair nature of council tax. He was speaking at a campaign visit to Chelmsford where the Lib Dems are in a tight race to overturn the Tories standing majority of more than 17,500.

Chelmsford Council has said that without more funding from central government, the current 24/25 year will be the last time it will be able to balance its finances without making significant changes to its services.

Ed Davey said the priority should be reviewing how grants are allocated and that “the biggest way we can help council tax payers is by making sure central government gives fair grants to local authorities”.

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However, he said that although he recognised some less wealthy areas are “getting a raw deal” that equalisation should be done through grants rather than a overhaul of the council tax system.

His stance is at odds with the IFS which believes reform of council tax is urgently needed. The house prices it is based on haven't changed since 1991 despite 30 years of significant change in the housing market and these changes have made the tax regressive.

The IFS has illustrated the key problems with our current council tax system - that it is out of date, and highly regressive with respect to property value. Average property values have increased by massively different amounts in different parts of England since properties were valued for council tax – around twice as much in London than in the North East of England.

It means council tax is a much higher share of property value for low-value properties than for high-value properties. In Essex, it means people in Jaywick, one of the most deprived parts of the country, are paying at least three times more as a proportion of their property value in council tax compared to the wealthy area of Hutton Mount in Brentwood where house prices exceed £1.3 million.

The IFS adds that evaluation, on its own, would do little to affect the progressivity of council tax across the income distribution. Making council tax proportional to value would see low and middle-income households gain and high-income households lose, on average.

Council tax bands in England are still based on property values in April 1991 – almost 30 years ago. Since then the relative prices of different properties have changed significantly: for example, official estimates suggest the average price in London is now more than six times what it was in 1995, compared with barely three times in the North East.

Moreover, the most valuable properties in 1991 (Band H) attract just three times as much tax as the least valuable properties (Band A), despite being worth at least eight times as much in 1991 and typically even more now, since prices have risen most in areas where they were already highest.

They also argue that the single person discount - offering 25 discount off council tax - effectively subsidises households with one adult single adults and penalises households with more than one adult from living in larger more expensive properties.

They say this leaves a tax system that is making it relatively cheaper for people to live in houses that are too big for them and more expensive for those that need a bigger house.

They say reforming this discount could reduce problems of both under occupation and overcrowding in housing.

Ed Davey said: “The IFS seems to think this is easy to do. It is not easy to do. Anyone who has looked at local government tax reform knows how tricky it is.
“But where it is absolutely right there are some areas that are getting a raw deal. But I would go back to the grants system.

“One of the whole purposes of the grants system for local authorities is to make sure those areas that are less well off get a bit more help - it is the equalisation part of the government grant and that has been undermined by the Conservatives.

“There is no doubt people in less well off areas are getting a worse deal but I would say the quickest way to fix that is through the grant system.”