I have this morning published the latest note in my series that will make up the Taxing Wealth Report 2024. This latest note deals with a number of proposals for the reform of council tax in England. Broadly similar proposals could also be applied in Wales and Scotland which have slightly differing but not dissimilar council taxes, but not in Northern Ireland, which does not have this tax.
The summary of this note says:
Brief Summary
This note recognises that the council tax system used in England (of which variations are in use in Wales and Scotland, but not Northern Ireland) was always a hasty compromise when it was introduced in 1993, and that nothing has improved it since then.
For one pragmatic reason, however, it is not suggested that major reform of this tax take place as part of the whole package of reforms suggested in the Taxing Wealth Report 2024. That pragmatic reason is that there are many better ways of transforming the tax system as a whole to tackle the inequalities created by wealth in the UK than by expending a great deal of effort to totally redesign or even replace council tax. If the goal is to tackle the issue of wealth inequality in a systemic fashion then complete council tax reform has to come a long way down the list of potential reforms, even though the tax as it currently stands is very far from ideal.
That said, there is much that can be done within the parameters of the existing tax and this note proposes that if the goal is to more appropriately tax high and low-value properties, and in the process reduce the regressive nature of this tax, then this will require:
- Property revaluations.
- Increasing the number of bands used for property
- Changing the ratio of tax charged between top and bottom bands of council tax.
- Changing the exemptions available to those on benefits.
- Changing the treatment of second properties.
- Changing the treatment of vacant properties.
- Using central government grant-giving mechanisms to provide more support for local authorities in poorer areas whose revenues will fall as a result of these proposals.
The result could be a considerably fairer tax than we have at present, but not an optimal solution, which would have to wait for attention when more of the issues tackled in the Taxing Wealth Report 2024 have been addressed.
It is important to note that it is very unlikely that this proposal would raise additional tax revenues. There is very little scope to do that within the existing structure of this tax, not least because the number of high-value properties that are undertaxed at present is quite small, and any proceeds from taxing them more appropriately should be used to reduce charges elsewhere across the tax bands. The aim should be to create a fairer tax.
Discussion
Council tax is often noted as one of the more regressive taxes within the overall UK taxation system, whichever of the varieties is being referred to. The fact that very high-value properties are very obviously under-taxed by existing council tax arrangements is a point of irritation for many who would prefer a more progressive taxation system. However, that being said, only a tiny number of properties actually fall into the under-taxed category, and the potential for raising any significant additional revenue from this tax is decidedly limited. That is most especially the case if the excessive burden that this tax frequently imposes on those who are on low incomes, or who live in small properties, or who are on any form of benefit, is to be alleviated.
As such, the focus of the recommendations made here is to produce a fairer version of council tax in ways that would not impose significant political or financial cost, whilst creating significantly greater equity, with the necessary attention required to address inequality being focused elsewhere on other issues addressed by the Taxing Wealth Report 2024.
Cumulative value of recommendations made
The recommendations now made as part of the Taxing Wealth Report 2024 would, taking this latest proposal into account, raise total additional tax revenues of approximately £111.4 billion per annum.
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As with the most of your taxing wealth report I applaud what you have done here.
However, I am not sure if it addresses the lack of control that councils have over using a property tax, or any other form of taxation, to fund their legal requirements to provide public services.
Something that the old Rating system appeared to do at a low cost to the average homeowner. At least, that was my experience of buying my first house.
As Thatcher and her successors have demonstrated, once the funding of local services is highly dependent on National government it gives corrupt politicians the perfect opportunity to defund local services and blame it on others.
We have no option for local tax in the U.K. right now that does away with the need for central funding.
The system would be grossly unfair if we did that – the areas of greatest need have the lowest tax bases.
I understand your point Richard and agree that in our current situation National government is the only option for redistribution but also I believe that regenerating and empowering local democracy is an essential element of a better Britain.
As I see it increasing their control of local taxation is an essential element in the mix, but maybe that is a discussion for another day.
Good start.
I would also like to suggest that the council tax be split between the owner of the property and the tenants in it. SO if you own the property you pay 50% of the council tax and your tenant the other 50%. Those figures could be amended but I think an owner should pay some of the council tax and not just the tenant.
Also it should be contextual to your yearly earnings.
if you are a couple and earn over £24000 per year between you you pay 50% the owner pays the other half.
If you earn less than that then you should pay less
It would make no difference
The owner would always pass on the charge in the rent
The incidence of the tax charge will always be on the tenant
That last paragraph looks like it is copied and pasted from the last Note published a few days earlier.
It reads very clunkily especially as you have to read it 3 times to realise these proposals today contribute nil to the running total.
Can you tell me which last para you are rferring to?
If it is the one in the blog, that is true because nothing ahs changed
The note was not the easiest to write, I admit
Please can you confirm how each council sets the Band D rate. I assume it is not the same everywhere. Is there somewhere I can find that data?
The rules are complex – inclduing fixed maximum ratios to the previous year, which is the big constraint now
There appears to be a lot of accident and oittle design to the process
I think there is a vital distinciton to be made between Local Government as a currency user (can only spend what it can raise in taxes, fees or from central government grants) and Central Government as currency issuer (can only tax what has previously been spent into existence by fiat), As such I’m not sure this post on Council Tax sits easily in the wider context of what you are trying to achieve.
Wider context – as I have posted before local government is woefully misuinderstood by the vast majority of people. For most the council is responsible for emptying the bins, cutting the grass, mending (or not) the pothholes in the road and maintaing the street lights. In truth this is a tiny proportion of what local government does. Most people are not affected by what we call the “dirty work” – Children’s social care, Adult social care and Housing – and the sums spent on these are eye watering (and increasing as a result of the morbid symptoms of end-stage neoliberal capitalism). All three areas are statutory duties imposed on local government by Act of Parliament (key legislation in my area is the Mental Health Act, then the Care Act and the Mental Capacity Act). As Adult Social Care we have no discretion – we can’t trun round and say there is no money to pay for a care package – in court (or before the Ombusdman) all that matters is the law, not the budget.
Which is why all three areas (though I will bow to PSR’s greatwer knowledge in housing) should be fully funded by central government with delivery devolved to local government instead of the current inadequate and iniquitous “social care precept” that does nothing but pass the highest costs down to hose least able to pay.
I disagree
Local accountability requires local tax
There are six reasons to tax:
1) To ratify the value of the currency: this means that by demanding payment of tax in the currency it has to be used for transactions in a jurisdiction;
2) To reclaim the money the government has spent into the economy in fulfilment of its democratic mandate;
3) To redistribute income and wealth;
4) To reprice goods and services;
5) To raise democratic representation – people who pay tax vote;
6) To reorganise the economy i.e. fiscal policy.
To pretend there is one is wrong.
No problem with disagreement. Though I have read the Joy of Tax (and plenty of MMT literature) and have no argument with your 6 reasons to tax. I also was not arguing that Council Tax be abolished but rather flagging up the distinction between currency issuer (which is what the rest of the Taxing Wealth report covers) and currency users (which is what local government is, partly funded by Council Tax and perhaps also covering points 3 and 5).
Linking this to the subject of local accountability – as someone on the front line I find it grossly unfair that local politicians (of all stripes – plenty of Tory run authorities are in desperate financial straits) are being blamed for issues outside of their control. They can’t not pay for a duty imposed by Act of Parliament but they also (and it would be hugely regressive tax wise to do so solely or even mainly through Council Tax) have no control over the budget to pay for these duties. And no amount of fiddling with Council Tax is going to change that
I agree with your second para
While I agree in principle that Adult social care is a statutory obligation, the frequency with which care is denied because there is no budget is frightening. It seems to be denied by limiting or refusing a care package, or reducing it when there has been no reduction in need. If no care package has been assigned, or the individual has not been assessed, there is no statutory obligation. Isn’t this one of the reasons that NHS beds are blocked?
The answer, obviously, is to restore local authority funding to the right level. That’s not going to happen, though, is it?
@Cyndy – people are tired and are unwilling (or in many cases unable) to fight. It takes a lot of time and effort to get to the Ombudsman or court but when they do they usually win. Case law and Ombudsman judgements are clear.
Whilst I have worked with managers who took delight in cutting care packages and seeing the “savings” mount up on a spreadhseet they are very rare. Most social workers, care managers and their superiors (at least in my LA) are working very creatively to meet need but the reality is of a £4 billion shortfall in Adult social care funding over the next 12-24 months (ADASS / LGA figures). It is why, along with rapidly rising costs in Childrens social care (clearly linked to the explosion in poverty and the resulting trauma) and housing (ditto) so many councils are going bust. The whole system is broken by austerity – we can’t recruit social workers, care agencies can’t recruit care workers (and without care workers we can’t commision care packages to get people out of hospital and safely home), those who are left are exhausted and carrying dangerously high case loads and all the while demand is increasing
Stewart Graham
I agree with much of what you say, paqrticularly with regard to individual local authoroity workers who do everything they can.
It worries me, however, how infrequently we see local authorities (of whatever political persuasion) screaming that the reason that aubtie Mary cannot get the care she needs is because the government has cut the budgets to the extent that the LA cannot comply with its statutory obligations.
Surely that should be screamed out almost daily?
May I add two points.
Firstly who should be the ‘Liable Party’ for Council Tax?
At the moment there are various people in the frame, usually the owner or tenant but why not make it the owner?
I believe most ‘property taxes’ in other jurisdictions are paid by the owner, as is the case in the Northern Irish Domestic Rating system. Amongst other things it would make collection and administration much simpler.
Secondly until 2013 there was a National Council Tax Benefit scheme, now it is down to each authority to design and funs its own scheme, as a result lots of households who would not have had to pay anything now have to pay some or all of their Council Tax with predictable results.
The net impact will always be on the occupier
You ignore empty properties. I agree with John. Even better is his proposal would mean higher collection rates and some council staff released to work in other directorates.
I thought I wrote a whole section on them….
Great Minds Think Alike
The Welsh Government is proposing changes to Council Tax
https://www.gov.wales/help-shape-future-council-tax-wales
I particularly like the idea of regular revaluations
I was astonished by the timing and similarity of the suggestions, even down to it not being revenue raising.
In 1996 Scottish economist James Mirrlees won a Nobel Prize. His work on optimal tax theory and incidence of tax is well know by the cognoscenti.
How do you reconcile your insistence that Council Tax is incident on the occupier with what one of the all time greats has said on the subject of tax incidence, namely that taxation akin to a land value tax is incident on the owner.
Don’t get me wrong, you could be right, but I’d expect you to be a contender for a future Nobel if you were.
To be candid, I think optimal tax theory compete drivel – making assumptions about the world in standard economic form that have little or no relationship to reality. Thankfully, the real world has very largely ignored it, although consumption taxes have risen.
The answer is simple. Landlords pass on their costs. Note what has happened with rising mortgage costs.
Next silly question?
And I suggest you look at the real world, not theirs, for evidence.
Take the exemption from Council Tax for empty properties due to a death or a permanent move into care. That’s a benefit for someone but for whom?
Then suppose we remove that exemption, and say the Council Tax has to still be paid until the property is sold.
To claim that the incidence of the property tax is always on the occupier is just angry assertion and not borne out by reality or theory.
I expect deflection saying you’re proposing other taxes on final property sales, or something about mortgage costs on rental properties whose supply is currently being massively restricted.
Did I suggest removing that exemption?
Why make stuff up?
If you haven’t got an argument don’t make one up.
And nor does an exception mean that the generality is wrong
You really have a lot to learn