Elliott Keck is Head of Campaigns for the Taxpayers’ Alliance.
It’s that time of year again. Council budgets are being agreed, and final decisions on Council Tax changes are being made. Most of us are facing rises of five per cent. The unlucky residents of places in England such as Nottingham, Birmingham, Woking and Thurrock will be forced to swallow increases of as much as 10 per cent thanks to the financial mismanagement by these councils. In Wales, where there is no cap on increases, residents of Pembrokeshire are likely to have to cough up an extra 16 per cent.
Inevitably stories begin to emerge of some of the absurdities involved in Council Tax rates, most notably that of Buckingham Palace which is subject to a lower Council Tax rate than almost half of the homes in the UK.
How on earth can that be? Council Tax wonks will understand that while Buckingham Palace’s Council Tax rate may seem suspiciously low, it is nevertheless in the highest band that a property can be – Band H. The reason behind its suspiciously low rate is that Westminster has among the lowest Council Tax rates in the country. A Band D property in Westminster would have been liable for £912 in Council Tax bills during the 2023/24 financial year. Compare this to Rutland, where it’s £2,366.
The reasons behind this are numerous. We at the TPA have gone into meticulous detail exploring the gulf between these two councils, in an essay on our website. Put simply, Westminster Council does not rely on Council Tax to anything like the same degree as Rutland. There are four main sources of income for councils – Council Tax, government grants, business rates and sales, fees and charges. In all of the latter three areas, Westminster brings in significantly more revenue, allowing it to keep Council Tax low.
But not everywhere can be like Westminster. Most places are forced to rely heavily on Council Tax for revenue, although they are bringing in more cash through various sales, fees and charges, including airports, harbours, and toll facilities as well as waste collection and recycling. They cannot simply replicate the business rates of Soho.
And because Council Tax bands are based on the value of the property (or what it would have been) in 1991, it doesn’t take into account the uneven surge in house prices, with London and the South East seeing prices increase at a far greater rate than the rest of the country. That’s why there are areas in all corners of the country where average Council Tax rates are around 10 per cent of median gross pay, from 10.85 per cent in West Devon, to Pendle in the North West and Redcar and Cleveland in the North East. By comparison, in Wandsworth and Westminster the equivalent figure is just over two per cent.
So Council Tax is grossly unfair. There is no doubt about that. But how to reform it? Well, as much as Conservatives love to point to Labour’s record in Wales as a warning to voters in England, Wales is the centre of some of the most interesting Council Tax proposals in quite some time, putting aside the shocking example of Pembrokeshire. The Welsh government has proposed three possible reforms to Council Tax, all of which have the potential to improve the way it operates.
Proposal one, the simplest, would involve revaluation, to ensure Council Tax bands are based on property prices as they currently are. Already, Welsh bands are more than a decade more up-to-date than English ones, based as they are on property prices in 2003. There would also be regular revaluations. This wouldn’t be the radical overhaul some are hoping for, but it would be a substantial improvement.
Proposal two is bolder. As well as revaluation, there would be changes to the bands themselves. The system would become more progressive as a result. The concern here, of course, is that this would be merely a fig leaf to take more from those with more valuable houses. That is a genuine concern, but the Institute for Fiscal Studies think the result would be that 803,582 households would see lower bills, 471,160 would see higher bills and 197,440 would see little change.
Proposal three is perhaps the most radical. Again there would be revaluation, but in this case three new bands would be created, with two new bands for the most expensive properties and one for the cheapest. This would add complexity, generally something to be avoided, albeit the change is minor. Again, according to the IFS, the result is expected to be that 786,090 would see cheaper bills, while 473,543 would see higher bills and 212,000 would see no change.
Whichever proposal is taken forward, the system of Council Tax in Wales is likely to be fairer than in England. There are risks: as mentioned, it is crucial that the overall tax burden stays the same, or ideally falls. And of course revaluations could end up being delayed anyway for political reasons. The lack of a referendum cap will also mean crippling hikes continue in some areas, something which needs to be addressed quickly. The system would be far from perfect. But it would be a step in the right direction, and one that England should think about following.