Introducing new bands at the top, as suggested by opponents of the Mansion Tax, won't amount to the comprehensive reform we need
Following on from yesterday’s assessment of Labour’s ‘mansion tax’, I now turn to council tax reform. Supported by everyone from Peter Mandelson to David Lammy, Tessa Jowell to Margaret Hodge, reform of council tax has been cited as the obvious property tax alternative to the Mansion Tax.
Indeed, council tax reform seems to command cross-party support: recent polling evidence suggests the majority of MPs believe it a better way to reform property taxes on high-value dwellings than introducing a Mansion Tax.
So what would it look like?
Council tax in England is based upon outdated valuations from 1991 and comprises eight bands, the highest (Band H) representing properties worth £320,000 and over. As such, proposals for reform call for revaluation to represent current prices and the introduction of more property bands to ensure greater proportionality, especially targeting those in the most expensive properties, as the Mansion Tax aims to do.
However, despite the widespread nature of calls for council tax reform across parties, the advantages of reform have a range of associated drawbacks, which would be sensible to remember each time council tax reform is cited as a handy property tax alternative.
So what are it pros and cons?
Cross party and widely supported: Support for council tax reform is nothing new: the Lyons Inquiry into Local Government of 2007 called explicitly for revaluation and additional tax bands at the lower and upper ends of the spectrum. Indeed, recent polling showed 75 per cent of MPs agree there’s a need for reform, indicating its cross-party appeal.
Additional revenue for squeezed local councils: In the context of continued local government ‘efficiency savings’, the increased revenue generated by council tax reform is desperately needed, while more money generated locally could see decreases in central government subsidies. For instance, when the Welsh government reformed council tax in 2005, local government saw a considerable average revenue increase of 4 per cent.
Progressive and fairer: The bunching of the top ‘Band H’ covering all properties worth £320,000 or more in 1991 causes wild inequities: for instance, Westminster City Council’s highest annual charge of £1,353 is levied flatly on everything from pensioners’ modest flats to multi-million pound homes. Like the mansion tax, revaluation and higher bands would ensure a more progressive system: indeed, these reforms in Wales saw 40 per cent of its households changing band, indicating how outdated the current system is.
Local, not central: while certainly strengthening local government finances and democracy, this reform is no immediate revenue raiser as, unlike the Mansion Tax, it cannot be used to increase central government spending in a direct way. Additionally, local discretion means some (wealthier) councils might reasonably push against reforms.
Long term and comprehensive: Revaluations and band introductions will be complicated, requiring local authority consultation and time. Though such reform is undoubtedly a positive investment, if political debate concerns how we’re planning to raise money for much-needed NHS spending, the Mansion Tax offers a faster, immediate route.
Asset rich, but cash poor: The Mansion Tax has been criticised because it may inadvertently target those who are ‘asset rich but income poor’, such as the elderly, living in homes bought decades ago. However, exactly the same charge can be made against council tax reform, where the income of families in modest homes hasn’t risen in line with inflated house prices. Like the Mansion tax, council tax does not reflect ability to pay: but unlike it, council tax reform would affect many more who are property rich, but cash poor – and will also affect those who are renting and those living in social housing.
Council Tax Benefit: This necessitates reform of Council Tax Benefit, the only real mechanism to ensure progressive reform. However, changes to CBT are complicated and contested, not to mention potentially expensive.
Regional variation: Diane Abbott has called the Mansion Tax a ‘tax on London’, with an estimated 80 per cent of £2m plus properties situated in the capital. However, this regional bias is multiplied within comprehensive council tax reform. Revaluation would reflect changes in prices, meaning council tax burdens would rightly shift southwards: indeed, the average property price in London is £514,000, smashing the current highest ‘Band H’ valuation. Furthermore, and paradoxically, wealthier areas (with less financial need) will have a greater ability to raise council tax revenue, while the opposite will be true of poorer areas. However, there is currently no real political understanding of what these complex regional bands ensuring proportionality and fairness across the country would look like.
In short, it’s clear that council tax must be reformed in the interests of fairness, whichever party wins power in May. However, introducing new bands at the top end, as suggested by opponents of the Mansion Tax, does not amount to comprehensive reform.
Properties need to be revalued, and long-lasting mechanisms must be introduced to address regional variation, and to accommodate the many who’ll find themselves classed ‘property rich, but cash poor’.
Similarly, these proposals won’t address the ever-growing need for rent controls and reducing the power of landlords.
Most certainly, a Mansion Tax is no council tax reform alternative. However, while the latter requires long-term deliberation and operational mechanisms, the former is a short-term revenue raiser. The Mansion Tax will provide central government with money to spend on the NHS: while council tax reform will, eventually, reduce central government subsidies for local councils.
Mansion Tax and Council Tax reform are not interchangeable alternatives: they are different types of property taxes, for different kinds of ends. And as the former commands approval ratings of over 70 per cent, it seems only one has the political traction necessary to command public authority.
Daisy-Rose Srblin is research fellow at the Fabian Society. Follow her on Twitter
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