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Chris Mahoney looks at the options for making council tax more progressive and income related ...
Chris Mahoney looks at the options for making council tax more progressive and income related

Taxation, once openly discussed in respectable society, has supplanted sex and death as the great conversational no-no. This complicates the challenge facing the Centre for Council Tax Reform, a mini think-tank launched by the New Policy Institute.

Underpinning the centre's work is the indisputable claim that despite all its virtues - not least of which is it not being the poll tax - council tax is hideously regressive.

Given a free rein, the Centre for Council Tax Reform would split both the bottom band and the second-highest band into two, adjusting the modifiers so those in the most expensive homes would pay six times more than those in the cheapest - rather than the current three-to-one ratio.

Supported by the Local Government Information Unit and the Public and Commercial Services union, the new think-tank believes the recently announced revaluation of properties should be preceded by measures to make the tax more progressive.

Andrew Harrop, the centre's co-ordinator, says the tax is the most regressive major revenue-raising measure in Britain.

'The highest level of tax is only three times as much as the lowest, even though homes in the top band are worth at least eight times as much as those in the bottom. Government statistics show local government taxation makes up a smaller proportion of households' disposable income the higher up the income spectrum one goes.'

Using the average English council tax figures for 2001/02, Mr Harrop says those in band B - homes valued between£40,000 and£52,000 - will pay between 1.3% and 1.8% of the 1991 value of their home each year. Someone living in a home in band H, that is one worth over£320,000, would pay between 0.5% and 0.9% of the home's value.

Similar discrepancies apply in the proportion of income consumed by council tax, leaving thousands in a poverty trap where the incentive to find work is reduced as council tax benefit is withdrawn as income increases.

Figures from the Office for National Statistics show those in the second-lowest income group pay 9% of their disposable income in local taxes. Those in the second-highest group pay 3.2%. Even after the benefit is taken into account, the gap in the percentage of income paid is significant. The centre argues removing or reducing the regressive element would have the bonus of reducing the council tax benefit bill. This would mean those in the best homes pay more while those in the cheapest homes have lower bills and hence lower total subsidy.

'There is public ignorance (about the inequalities) so the government can quite legitimately say people are not talking about council tax,' Mr Harrop says.

His centre could be accused of going around the country stirring up apathy. Despite that, its wish list includes more bands and changes to the modifiers.

'In some parts of the country it is almost a flat-rate tax. In the north east, for example, 60% of homes are in band A so it begins to look like the poll tax. Research we did two years ago showed we could reform council tax and the only group you would really hit would be the

top 10%.

'The argument we are making is if Labour are committed to not raising income tax this is something they can do instead,' Mr Harrop says.

Dennis Reed, director of the LGIU, agrees: 'It is not necessarily the case that this will hit middle England. Putting in new bands at the bottom to help the most deprived and those in the poverty trap would not hit the middle classes.'

He points out the government does not need primary legislation to change the modifiers - it can be done through regulation.

But neither man believes the forthcoming finance white paper will include a commitment to change regulations speedily and they would settle for 'a commitment in principle' to look at fairness issues.

The government's announcement of a revaluation in 2005 to be implemented in 2007 was accompanied by a promise to look at the 'fairness' of current arrangements at that time, suggesting radical change is unlikely in the next few years. Revaluation itself is, to say the least, a complicating factor.

As it will update valuations from nearly 15 years earlier, the revaluation is likely to send hundreds of thousands of homes in property hot-spots up at least one band. In an unreformed council tax system, that would effectively mean moving central government support from the south to the north, with southerners facing big tax increases. For Stephen Hughes, director of finance at Brent LBC, the regional disparity in property values is a key concern.

Like those calling for change, he believes the government will not commit to reform in the white paper because of uncertainty about the impact of revaluation.

'They will have to do a survey to work out the consequences of the impact on grants. There are potentially disastrous consequences in terms of moving grants from the south to the north.'

'One of the spectres of local government is the fiasco that was the poll tax and the huge distributive change

that took place. It effectively undermined the credibility of the (Conservative) government and although they won the 1992 election you could say they never really recovered.'

Mr Hughes says he would be 'very anxious' about moves to tackle the tax's regressive nature, arguing that it lessens the impact of property market distortions between north and south.

'Regression maintains a degree of equity between authorities. If you move a band A house from Newcastle to London it will be in at least band C and possibly D or even E. There are people paying very different levels of tax whose objective circumstances are not different. Revaluation will heighten that.'

He argues that, because this particularly hits those on modest incomes, the national banding system could exacerbate difficulties recruiting key public sector workers in London and the south east. His solution is regional banding.

'I am not against wider banding or changing the modifiers provided bands are related to local circumstances. The core grant distribution system takes account of this through the 15% area cost adjustment. But the difference in property prices is a lot more than that - the same homes cost double in some cases.'

Neither Mr Reed nor Mr Harrop rejects the idea of regional bandings. London at least could be given its own bandings, Mr Harrop agrees, if it supplied evidence that council tax demands on modest homes in the capital were beyond the means of occupants.

The Local Government Association's response to the Autumn 2000 green paper on local government finance supported a review of bands and the multipliers 'to improve the fairness of the tax and enhance its long-term stability'. That support could diminish if the Conservatives, who control areas with more expensive homes, continue to increase their share of votes on LGA executives.

Neil Kinghan, director of local government finance for the LGA, agrees the tax is operating almost as a flat-rate tax in some areas with little relation to ability to pay. He believes ministers could eventually opt for the sort of splits in the lowest and highest bands favoured by the LGA, the LGIU and the Centre for Council Tax Reform. But the looming white paper, it seems, is unlikely to feature much on the biggest local revenue earner.


A British government knows it is in trouble when there are riots on the streets of Tunbridge Wells. Margaret Thatcher's fall in 1990 owed at least as much to her loyalty to the poll tax as to her Europhobia.

The community charge, as senior Tories but almost nobody else called it, was a flat tax par excellence. Unlike the rates, every adult paid it - ensuring, in Mrs Thatcher's view, that those who voted for high-spending Labour councils would pay a price.

But as the first poll tax demands went out in the spring of 1990, riots and protests spread through the country, culminating in the Battle of Trafalgar Square.

The government's popularity collapsed and nervous Tory MPs ditched their talismanic leader a few months later.

Her replacement, John Major, asked his principal rival, Michael Heseltine, to return to the Department of the Environment to work on a replacement for the tax. The outcome - the council tax - was dismissed by some commentators as the old domestic rates with a discount for single adult households. While a property tax like

the rates, it was payable by the household - whether they rented or owned the property.

It was implemented in England, Scotland and Wales by the Local Government Finance Act 1992 which provided for homes to be placed in one of eight bands according to the 1991 valuation.

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