William Eichler 19 March 2020

Council tax ‘arbitrary and unfair’, think tank says

Financial experts have criticised the current council tax arrangements and called on the Government to reform them as part of the ‘levelling up’ agenda.

The Institute for Fiscal Studies (IFS) described council tax as ‘highly regressive’ with respect to property value and ‘increasingly arbitrary and unfair’.

Property values in London have risen over six-fold since the mid-1990s, compared to less than three-fold in the North East of England.

However, according to the IFS’ new study, council tax bands and bills, as well as central Government top-ups to councils’ revenues, are still based on relative property values in 1991.

The bill for a Band H property is just three times that for a Band A property, despite the former properties’ being worth at least eight times as much as the latter properties even in 1991.

The think tank, whose research was funded by the IFS’s Local Government Finance and Devolution Consortium and the Nuffield Foundation, argues that a revaluation and reform of council tax would help close the economic gap between UK regions.

The IFS researchers calculated that if properties were revalued based on values in the first quarter of 2019, and Government funding for councils adjusted to account for this, average bills would fall in the Midlands and North and much of the South West, and increase in London and its environs.

They also found that if council tax were made proportional to property values, the changes in average bills by council would be much larger. Average bills across most of the Midlands and North would fall by over 20%.

The think tank estimates about 2.6 million - or 11% of - households would see their bills fall by more than £200 a year, while a similar number would see them increase by more than £200 a year.

It stresses, however, that there would be many more winners than losers, with young adults, disabled adults and households with low and middle incomes, in particular, benefitting.

‘The failure to revalue council tax for almost 30 years means the tax bills households face bear less and less relation to the values of their properties,’ said Stuart Adam, a senior research economist at the IFS and an author of the report.

‘At a minimum the government should therefore revalue properties and put in place a cycle of regular and frequent revaluations to stop us getting in this situation again. Ideally it would undertake more radical reform too.

‘Reform would create millions of losers as well as winners, which means doing it would probably involve some political pain. But it must be done at some stage, or we would still be basing council tax in 2091 on relative property values in 1991 – an absurd state of affairs. With a government with a large majority, the next few years looks like as good a time as ever.’

For more on this see the IFS' David Phillips' feature in The MJ, 'Government should grasp the council tax nettle'.

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