Council tax is broken - it’s time to fix it
As the Spring Statement showed further sweeping cuts, we ask why politicians are afraid to touch the regressive tax as it’s the most vulnerable who pay the price.
As the way to secure growth in the economy appears to be increasingly tabled on making things harder for society's most vulnerable we've considered a way the Chancellor in her Spring Statement could have balanced the books in a much fairer way by tackling an ingrained injustice baked into our British obsession with property ownership.
In England, people living in the most expensive houses pay the least amount of annual property tax. Sounds backwards? It is.
Since council tax was created in 1993, a remedy to Thatcher’s disastrous poll tax, politicians haven’t dared touch it for fear of rocking the political boat. This has led to a regressive taxation system whereby the most affluent areas in the country pay the lowest amount of council tax.
Take Knightsbridge, for example, which was home to the UK’s most expensive street to live last year. It costs on average £20.35 million to live in Knightsbridge, yet council tax is the second cheapest in England – £1,946.32 per year for properties in the most expensive band (band H).
Meanwhile, in the UK’s most deprived town, Blackpool, where the average property price sits at £149,543, residents have to fork out more than double the amount of Knightsbridge homeowners, with the most expensive (band H) council tax in the town costing £4,784.42.
As council tax rises again this month, the average band D council tax for England will soon be £2,280. But for London’s most expensive boroughs, the figure is much lower. In Westminster, home to the famous Belgravia and Eaton Square (also known as the Red Square, due to its numerous Russian billionaire residents), residents in band D properties will pay just £1,019 annually — less than half of the national average. In Kensington and Chelsea, residents will pay £1,591.59, around 30% lower than the average.
Top council tax bill in Knightsbridge: £1,946.32
Top council tax bill in Blackpool: £4,784.42
The gulf between London and the regions has been increasing. While Greater London has the lowest council tax rates in the country, the North East has the highest. When prices increase next month, the North East will pay £444 more than Greater London. This difference is the biggest on record.
What makes this so absurd is that a two-bedroom detached home in Belgravia, worth nearly £3 million, would only cost £1,621.94 in council tax. A two-bed terraced house in Newcastle, meanwhile, would cost £1,782.69 — despite being worth a tenth of the price.
In Blackpool, for a £110,000 house on the Grange Park Estate, the council tax is £2,126.41. In London’s most expensive apartment complex, One Hyde Park, where one-bedroom flats go for £5 million each, council tax is £1,946.32.
Disproportionate council tax bills perpetuate the North-South divide, but the disparity can be felt within London, too. Tower Hamlets is one of the most deprived areas in the capital and has an average property value of £500,000. Yet, those on band E pay hundreds more per year than residents London’s poshest neighbourhood.
Why is this happening?
Council tax estimates are based on property valuations made in 1991, despite the explosion of property prices in recent years. Another reason is because central London boroughs like Westminster can raise funds for local services by other means, such as business rates and government grants – so they don’t have to rely as heavily on council tax.
There is also a greater need for local services such as social care in more deprived areas, meaning councils need to charge more to keep up with demand. This contributes to a nasty feedback loop where residents may become more deprived and therefore more in need of vital services as council tax charges spiral upwards.
Council tax, as it currently exists, is fundamentally flawed. And while the legacy of Thather’s poll tax keeps governments from doing anything about it — Labour ruled out making any changes to council tax during the election — some, such as Grahame Morris, the Labour MP for Easington in County Durham, said council tax had become “even more regressive” than poll tax.
Organisations such as the Institute for Fiscal Studies (IFS), the Institute For Public Policy Research (IPPR) and the Resolution Foundation have all called for re-evaluation and reform of the antiquated system, with a shift towards a proportional property tax to replace stamp duty and council tax.
Chris Webb, MP for Blackpool South, agrees. He told The Lead: “The need for council tax reform has never been clearer. Rich councils collect far more from higher band properties and business rates than places like Blackpool, yet struggling areas are forced to hike council tax to the maximum just to make ends meet.
“Labour is tackling this with a three-year settlement for councils, but what we really need is a fair, progressive new council tax system that ensures those with the broadest shoulders pay their fair share.”
A proportional property tax would see homes charged at a flat rate of their current value. While considerations would need to be made to accommodate cash-poor, asset-rich households, and ensure the cost wasn’t passed on from landlords to tenants, estimates found that a simple tax of 0.48% (or 0.96% on second homes) would raise about an extra £5bn a year for the Treasury. This, coincidentally, is the same amount Chancellor Rachel Reeves is cutting disability and health benefits by.
The Spring budget is set to leave some people on PIP without two-thirds of their income. It’s a move that has been called ‘terrifying’ by campaigners, as the most vulnerable in society are plunged into poverty as a result of a pernicious (and potentially futile) effort to get people back to work.
Meanwhile, the government refuses to budge on a policy that is known to force the poorest in the country to pay the highest tax.
About the author: Ella is a freelance journalist specialising in worker's rights, housing, youth culture, social affairs and lifestyle. You can find her work in Tribune Magazine, Huck Magazine, Novara Media, VICE, Dazed, metro.co.uk and - most importantly - here at The Lead.
