Like the Poll Tax before it, Council Tax must perish

By Rose Grayston / @rosegrayston

Poll taxEver since Council Tax emerged from the ashes of the Conservatives’ failed Poll Tax, commentators have promoted alternatives ranging from a local version of Income Tax to Land Value Tax (LVT) and the Mansion Tax in its various forms.

The case for reform is compelling and urgent. It is not only that Council Tax is ludicrously outdated, with property bands based on property values from a quarter of a century ago. There is also the issue of the inequalities which were built into the system introduced by John Major’s Government in 1993. Council Tax is set at a higher proportion of property values for low-value properties than for high-value properties, so that the poorest pay four times more of their income than the richest. In addition, Council Tax is capped, with no more paid on a property worth £10 million than on one worth £1 million.

The result is a system of taxation which is regressive across the whole of the income distribution. Poorer families are effectively subsidising the public services of wealthier households, at a time when they can least afford to do so.

The old Council Tax benefit system went some way towards controlling the impact of this regressive design. Since its replacement with a less generous local system in 2014/15, Council Tax arrears have increased by 23%, and Council Tax debt has become the biggest problem on the Citizens Advice Bureau’s caseload. Councils are left chasing tax receipts from households which cannot pay them, while low-paid workers in our communities struggle to manage mounting debts. The status quo is working for almost no one, and is condemned by the Institute for Fiscal Studies and the Chartered Institute of Public Finance and Accountancy alongside groups which might be considered more “usual suspects”, like the anti-poverty charity Joseph Rowntree Foundation.

Labour’s 2015 Manifesto pledge to introduce a Mansion Tax on 100,000 to 150,000 of the highest-value properties addressed the issue of disproportionately low Council Tax at the top whilst leaving the regressive system of Council Tax as a whole untouched. In a situation where middle-income households are losing out as well as the poorest, a recent survey in Scotland found support for wholesale reform from two thirds of respondents. A future Labour Government needs to take on the challenge of fundamental and radical reform of this rightly loathed tax.

But this project is dogged by fears that reform will amount to little more than an exercise in moving many households up a Council Tax band, as happened when Wales revaluated in 2005. Labour must be bold in setting out a progressive, fair vision for the future of local taxation. We must be attentive to the toxic history of such reform, and realistic about the time needed to implement the change we want to see.

We have an opportunity to rebuild trust through revenue-neutral reform, funded through a levy on foreign property investors in London. The current system is so dated and unfair that without raising a single extra pound, a Labour government could bring down costs for 63% of households while raising bills for just 25%, reducing the average bill by £279 a year.

Even a completely revenue neutral reorganisation of location tax could create a fairer system, put more money in the pockets that need it most, and assist the stabilisation of the economy by reducing house price volatility. Like the Poll Tax before it, Council Tax must perish. Where successive Governments have shied away from action, the Labour Party should take on Britain’s most regressive taxes; for the many, not the few.

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