Council tax brings in over £34 billion every year. It’s a vital source of revenue for public services – schools, social care, pest control, waste collection and much more. It’s also an increasingly arbitrary, highly regressive tax, levied most heavily on those who are least able to afford it. It’s time to abolish and replace Council Tax with a fairer and more useful system of property tax.
In 1993, Council Tax was ushered in to replace the Community Charge, better known then as the ‘Poll Tax’. It sorted every property into eight ‘bands’, A to H, according to their estimated value. The higher the band, the more Council Tax you paid. The highest band, Band H, was for properties valued above £320,000 and Band A, the lowest, was for properties valued at under £40,000.
So far, perfectly just. Wealthier people, typically owning more expensive properties, pay more tax. What’s wrong with that? As it happens, quite a lot.
Firstly, the wealthy pay more tax, but how much more? At the bare minimum, a ‘Band H’ property (over £320,000) is eight times more valuable than a Band A property (£40,000 or under). However, the ‘H’ property will typically incur a rate of only three times that of the Band A property. This means that, relative to the actual value of the property, the wealthiest pay only a fraction of the tax the poorest do. Londoners, on average, pay 0.2% of the value of their property annually. In the North East it’s 0.7%.
Secondly, as the highest band includes all properties valued at more than £320,000 in a single group, there is no distinction between a moderately wealthy resident with a £321,000 house and the Venture Capitalist, Russian Oligarch or Captain of Industry who resides in a £30 million Knightsbridge mansion – they’re in the same tax band! For a system that purports to levy tax relative to the value of the property, it fails miserably.
Thirdly, those property values were estimated in 1991. The average house sold in the UK in 1991 cost £53,625 (the equivalent of about £120,000 today, adjusting for inflation). Today that figure is £260,771. And there have been great geographic variations as well, with house price increases in London and the South East massively outpacing the national average. You would think that due to the inevitable changes in house prices over time, the valuations of each property would be regularly updated.
Unfortunately, no such updates occur. The £34 billion, levied on almost every adult residing in the UK, is based on estimates that are more than 30 years old. These house value estimations, mediocre even in 1991, are now catastrophically out-of-date. Incredibly, even newly built properties are assessed on what they would have been worth in 1991. As a result, Council Tax bands have become increasingly arbitrary, totally failing to reflect thecurrent reality. With each passing year Council Tax increasingly reflects that which it was intended to replace – the Poll Tax.
The biggest beneficiaries of these ancient estimates are those who have seen their property values increase the most. If you owned a London property in 1993 (and have been lucky enough to keep hold of it), not only will you have seen a vast increase in your personal wealth as a result of sky rocketing house prices, but your Council Tax bills will have been consistently subsidized by the poorest! who were never fortunate enough to have lived in a wealthier area in the first place.
Council Tax was already regressive and inconsistent when it was hastily introduced almost 30 years ago. Now it represents a Frankenstein’s monster of governmental ineptitude and systematic inequality. Government after government has failed to halt this inconsistent burden. As a result, UK wealth inequality, driven predominantly by property assets, is far greater than UK income inequality, determined mostly by salaries.
However, this problem does have a clear solution – the abolition of Council Tax. Council Tax must be abolished. It is unfair and unpopular. Any government so timid to neglect Council Tax reform does its citizens a great disservice.
To replace it a Proportional Property Tax (PPT) should be implemented. In short, the owner of each property, including land with planning permission and second homes, would be taxed a percentage of its total current value.
There are several clear advantages to this. With a PPT, the owners of the £30 million Knightsbridge mansions would be paying their fair share. Regular house price valuations would see that the taxes levied actually reflect the current value of a property, not what it was assumed to be worth in 1991. Vast swathes of people who have been subject to overly high Council Tax, mostly in poorer areas, would see their taxes cut.
This surely would have an enormous and positive impact. It’s estimated that Council Tax being substituted for PPT would, for many people, reduce bills by 0.5 – 0.9% of household income. The bottom half of earners would see their tax burden fall by 0.7% – whilst the top 10% of earners would see a tax increase of about 0.7%. Taxpayers outside London would save an estimated £6.5 billion every year. These changes would reform and remedy a system that currently gives massive tax giveaways to the very wealthiest. Under PPT, the biggest beneficiaries would be the young, renters and those receiving disability benefits.
This new tax system would deliver effective tools for handling the housing crisis. The single biggest way to remedy this to build more homes. It’s beyond doubt that building new market-rate homes reduces house prices and rents. By applying the PPT to underutilized land, especially in areas where a lack of affordable housing is most acute, construction would be incentivized, land banking prevented, more affordable homes would be built and rents would certainly decrease.
By repealing Council Tax, instituting a PPT and regularly updating house valuations we can lessen the tax burden of the poorest, stimulate a healthier housing market and repeal the latest version of the hated poll tax not just in name but in practice as well.
PricedOut is the national campaign for fairer house prices. We want to make sure England builds the houses it needs so that everyone can afford a high-quality place to live. If you like our work and want to help us out please consider donating or maybe even volunteer with us!
