Council tax is ‘outdated and regressive’, and the Government should consider scrapping it in favour of a fairer system, according to a think tank.

As its relationship to property values gets weaker and weaker, council tax looks increasingly like the unpopular poll tax it was introduced to replace, the Resolution Foundation has claimed.

The think tank claims council tax is regressive due to the ‘wide bands’ for council tax, the small difference in the rates of the bands, the out of date property values it is based on and the regional variation.

Principal researcher at the Resolution Foundation, Laura Gardiner, said: ‘Despite replacing the unpopular ‘poll tax’, council tax has come to look increasingly like it. It’s time we looked to abolish it.

‘The council tax you pay is meant to be tied to the value of the property you live in, but when someone living in a property worth £100,000 pays a tax rate five times higher than someone living in a property worth £1m, something has gone seriously wrong.

‘The government should implement a new system that is truly progressive and avoids the ludicrous situation of people in mansions paying little more, and in some cases less, than families living in tiny flats.’

The think tank claims council tax could be reformed with additional bands – a mansion tax – or increased rates in the top bands, but that would not resolve the regressive nature of the tax and ‘more fundamental reform is likely needed’.

In its report, Home affairs, it suggests the Government could consider a ‘scrap and replace’ option to reform the poll-tax like nature of council tax, creating a new progressive property tax.

It suggests a 0.5% tax on capital value would raise £1.6bn compared with council tax. A similar 1% rate but with a £100,000 tax free allowance per property would boost revue by £8.6bn, but would mean no tax for the bottom 14% of properties.

A 1% rate, with a regional tax free allowance, and a higher rate of 2% on properties over £500,000 would raise £8.4bn.

The report calls for the end to discounts for second homes, empty properties and single adult households. Other changes could include: 

• Allowing authorities to vary property tax rates
• Basing a new tax on property rather than land values
• Basing a new tax on capital rather than rental values
• Shifting property taxes to owners, rather than occupiers
• Increasing income based means testing
• Making payment easier through income sources
• Allowing deferral of payment, or payment through an equity stake