The debate over the so-called mansion tax raises the question about the need to revalue the council tax base, says Tony Travers
This week’s parliamentary debate over the so-called mansion tax raises the question, once again, about the need to revalue the council tax base.
One thing that the Conservatives, Labour and the Liberal Democrats fully agree about is that domestic properties can never again be revalued. However ministers and their shadows dress it up, the reason for this is that millions of households would find themselves in higher bands, reflecting relative increases in property prices between 1991 and now.
Margaret Thatcher’s fate at the hands of the poll tax is the dominant factor in the collective view of the government and opposition frontbenches. The populist cry against politicians that ‘they’re all the same’ is certainly true in the case of local taxation. The added political horror is that many older voters would find themselves losing out if bills changed, and they vote heavily. Like death and individual income levels, council tax revaluation is a taboo.
But things are worse than that. Because the council tax base does not change to reflect house prices, councils must increase the tax rate if they are to raise resources in line with inflation. Income tax, VAT and excise duties, by contrast, see the yield rise with inflation and/or economic growth.
Thus, if the income tax base had (like council tax) been fixed at 1991 levels and tax rates raised each year, the basic rate of tax would now be something like 50%, with the top rate at perhaps 100% of notional 1991 incomes.
People would rightly think that basing income tax in 2013 on 1991 incomes was daft. But that is what we do with council tax. Politicians who freeze and cap council tax are happy enough to push up VAT and customs and excise duties, which stealthily bury rising tax levels in the price of goods and services.
The moral of the council tax story is clear: no chancellor will ever again increase direct taxes which bear on the majority of the population. We will see indirect taxation and, particularly, invisible taxes, rising. Council tax, by contrast, is doomed unless it can be rehabilitated. Mansion tax certainly won’t do that.
Tony Travers, director, Greater London Group, London School of Economics