'Unfair' council tax rates need to change, campaigner says

Hertsmere is refunding the increase to its share of the council tax liability (File picture)
-Credit: (Image: Getty Images)

Council tax reform “is on the way” - despite a reluctance among the main parties to talk about it during the election, a campaigner has said. Both Labour and the Conservatives have been reluctant to address council tax reform in the run up to the election on July 4.

But Andrew Dixon, who campaigns for council tax reform, says the need to address local government finance means it will have to be looked at. He adds a poll of 4,000 people conducted by JL Partners for his Fairer Share campaign group reveals widespread support for replacing Council Tax and Stamp Duty with a Proportional Property Tax (PPT) which would be levied on the current value of properties rather than on 1991 levels.

He says such a move could lead to bills falling for 77 per cent of the country, with the average household likely to be £556 a year better off. He said: “The key bit for me is that Labour is very dependent on growth. They need to show growth. Without the growth, they are not going to generate tax receipts.

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“They are going to have to find growth from somewhere. And I am a passionate believer that reform of this nature would lead to growth in various parts of the country outside London and the southeast. Because you are going to see households having slightly more disposable income which would then be spent on the high street. A pro-growth agenda has got to be pursued and I see council tax reform as part of the solution.”

He added that although there is little enthusiasm to talk about it in the run-up to the election it is likely it will be an issue after July 5. He said: “The Labour party have what’s been called a Ming vase strategy - don't drop the Ming vase. And that is why I think council tax is not part of their thinking.

“However on the other side of the election depending on what sort of mandate they have I am almost certain they are going to have to look at local government finance.”

The IFS has illustrated the key problems with the current council tax system - that it is out of date, and highly regressive with respect to property value.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.

David Phillips, an Associate Director at the Institute for Fiscal Studies said the new ‘Family Home Tax Guarantee’ would mean perpetuating the “increasingly absurd situation” whereby the council tax that households pay is based on the value of their property relative to others in England on April 1 1991 – a third of a century ago, when Mikhail Gorbachev was President of the Soviet Union and Chesney Hawkes topped the charts with The One and Only.

He added: “Since this one and only valuation of houses, values have increased by massively different amounts around the country, meaning that at least half are now effectively in the ‘wrong band’.

“Households in the North and Midlands are often in too high a band – and pay too much – while those in London and its environs too low a band – and pay too little – compared to what they would under a modernised tax. In other words, in its current form council tax works against levelling up.”