In his latest piece, JOHN RUDDY offers a progressive alternative to the current council tax system

 

There is now widespread agreement that the current system of local government finance is a mess, and needs reform. However, there seems to be little agreement on what should be done. One of the options, and my personal favourite, is a Land Value Tax. The trouble is, this would be difficult to bring in overnight, and of course there is the thorny issue of Council Tax benefit – or rather the disappearance of it.

How about something which could be done relatively quickly, would retain existing benefits for those most in need, and even go some way towards easing the burden of the cuts on local authorities?  This could be a temporary measure while much bigger reform is thought through. The suggestion I have is to increase the number of bands at the top end of the council tax scale.

Currently there are eight bands, A-H and tax is set for Band D properties, with other bands being a fraction of the Band D rate. Band A properties, for instance are 6/9ths of the Band D rate, while Band H are 18/9ths (or twice) the rate. I’ll use Angus Council as an example, partly because I have the figures to hand, but also because I live there. According to the Tayside Valuation board, Angus has 54,458 properties rated for Council tax, and the Band D rate is £1,072 per annum. However, the area has predominately smaller homes, as there are over 15,000 in the smallest band and only 166 in the top band. So making a larger number of bands might not have much effect, but we’ll see.

Let’s begin by splitting every band above Band D into two. So Band E becomes E & F and so on, right up to the new Band L, which will have only 83 homes in. Let’s also step up the fractions in the same way as they are now at the top end, with each band being 3/9ths more than the previous one from Band I upwards. If we keep the rate at £1,072 for a Band D home, we find that we now raise an additional £3.6million. For 2012/13, Angus Council has to make cashable efficiencies (cuts) of £2.5million.  So by this simple expedient, we can negate the need for any financial cuts – and even allow money to help improve the services it delivers.

If we were to cut the rate by £50 a year, we still raise an extra £949,000 – that’s enough to cancel out all the cuts to the Education department next year. But we also find that 85% of homes in Angus – over 46,000 are better off. Some people will find their council tax bills go down by as much as £6 a month. The additional burden falls squarely on those in the largest houses.

So we have a solution that is much fairer than the current set up – whether you have a freeze or not – and has the ability to cushion the austerity blow being delivered to local authorities. How’s that for being a progressive beacon?

 

Originally from Devon, John Ruddy now lives in Angus. He was an agent for Scottish Labour at the Holyrood election and is a Unison shop steward. Follow John on Twitter at @jruddy99

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20 thoughts on “Reforming Council Tax

  1. A not uninteresting idea, although I do appreciate it as a stop gap, to my mind it still fails as the basic problem with CT in that property does not necessarily reflect income and I mean that in both directions ie single older person in big house where as there could be 4 wage earners in a much smaller house. To be properly progressive it must reflect peoples income, not there property owning/renting status, with a proper scheme based on ability to pay. That kind of leads to a proper Local Income Tax, I suggest that rather than a Local Purchase Tax which although easier to set up and manage is far less progressive. For these to be viable we need to address the matter of Scotland, we need to have that discussion first and agree what the optimum number is, then decide how we are going to properly finance LA, personally I think as far as possible they should generate as big a proportion of their income as possible, to do this would need very close coordination between various taxes both local and national. Done properly it would not increase the overall tax burden on people but shift where it is paid to. Think of it along the lines of VAT where a certain amount is set nationally but the rest set locally, likewise with Income Tax

    1. I agree that Council tax is imperfect, but generally speaking, most people in larger homes are on larger incomes.

      A property related tax is hard to avoid – many of those in the higher bands in my scheme will certainly have private incomes. Larger homes always cost more to run and maintain, heating, repairs etc – which can usually only be done by someone with a larger than average disposable income.

      I think we need to get full cross-party support for a new system of local government taxation and finance. That will take time to examine the situation and come to an arrangement that all can agree to. That will take time to implement. Assuming it doesnt get started until 2016 with a Labour administration, I cant see it being in place until 2025 at the earliest. We cant maintain a council tax freeze that long (and its been shown to benefit those at the top more than those at the bottom, while crippling local government finance).

      This is a suggested stop-gap. Its not perfect, but its better than what we have now.

  2. Hard to argue against that suggestion, John, other than to ask if it would ever become official Scottish Labour policy and appear in a manifesto. Regardless, it’s certainly food for thought.

    1. Its certainly something I would like to see, as a first step towards totally re-inventing local government taxation – which will take a long time.

  3. I know little about taxation, but I think that we need to keep thing as simple as we can. Income tax should be gathered centrally and distributed to councils with an agreed formula. There should be VAT and normal business taxes. If we need to go further then we have to find a way of taxing assets in a fair way. Land, property, works of art, stocks and shares etc, I will leave for more expert comment. There are very wealthy people ( non doms and those who transform themselves into corporations ) who avoid tax big time and they must be subject to the same taxation as the rest of us. There are those who complain that this takes away discretion from local authorities, but they have so little leeway that they often go too far with tax increases.

  4. The big problem with associating tax levels with property value is that it does not take into consideration actual income.

    My house is an end-terraced 4-bed. For this I pay an extra £200 per year than my neighbour. Yet both he and his wife’s joint income is almost double mine, although my house value is about £15k higher.

    The easiest solution is a flat rate applied across the board, fixed by central government. OK, sounds like a poll tax but there is no easy solution. But we need to get away from property values and focus on ability to pay.

  5. The Least Imperfect Local Tax

    Scottish Labour still persists in trying to devise a fair, property-based tax – which SAACT believe is a contradiction in terms. Clearly, they haven’t learned by now that tinkering with the existing council tax can never make it fairer, as regards ability to pay.

    The Local Government Finance Review Committee eventually came to this conclusion in 2006, after calling on the University of Stirling to carry out modelling work. This research concluded that introducing additional council tax bands had virtually no effect on the burden of council tax. They also investigated the effect of increasing the multiplier, being the ratio of the band H to the band A charges. This time they concluded that any banded system could not be improved sufficiently to overcome its inherent shortcomings.

    So this may explain why Scottish Labour has never come up with any coherent policy on council tax. Perhaps they may be well advised to consult the Layfield Report (1976), which is looked upon as the most comprehensive review of local government ever produced. Layfield regarded Local Income Tax as the only serious candidate for a new source of local revenue”.

    Because Council Tax is heavily weighted against the poor and the “squeezed middle”, its replacement by a Local Income Tax is long overdue. This replacement tax would reflect one’s ability to pay, would guarantee much improved collection levels through PAYE, would be much cheaper to collect, would embrace local accountability and would ensure that all users of local services make at least some contribution.

    Alastair Murdoch
    Joint Treasurer
    Scottish Action Against Council Tax
    http://www.saact.org.uk

    1. Perhaps you should have read my post. I want a fairer system of local government finance, but on the understanding that this cant be introduced tomorrow, “tinkering” with the council tax to improve it in the SHORT TERM will provide some benefit, both to struggling councils trying to afford the high quality public services we demand, and to local residents on the lowest incomes (typically those in the smaller homes).

  6. “There is now widespread agreement that the current system of local government finance is a mess, and needs reform”

    Not sure how many people agree with this John. Yes Glasgow and a few other Labour controlled councils are a mess, but that’s because of decisions that are being made such as the farce that was Stirling recently.
    Some very dubious behavior by some very dubious labour politicians/councilors has caused mayhem in Glasgow over the past few years and with the labour parties leader in Scotland seemingly unable or unwilling to kick some buts, it has caused a lack of trust and confidence in our elected Representatives, but hopefully this loss of confidence is in labour politicians only and come Mays elections we will see a far more honest and competent council in Glasgow etc, with SNP run councils sorting out the years of neglect that councils such as Glasgow has suffered.

    Won’t be long 🙂

    SNP controlled councils seem to be doing ok, and with the freeze on council tax people are happy with the SNP.
    If you remember the labour parties policy is now to match this SNP ‘flagship policy’, so I’m not sure if this article has any legs, even within your own party.

    1. SNP controlled councils seem to be a very big mess. Compulsory redundancies, service charges massively increased, cut backs in provisions of Libraries and Sports facilities. But other than that, they’re doing fine!

      But since the SNP were elected in 2007 on a manifesto promise of introducing a Local income Tax (and its still Lib Dem policy I believe), the Greens wanting a Land value Tax theres at least three parties who think its currently not working.

  7. I know it may be politically unpleasant but if Labour and the SNP could agree then direct taxation is the best way.
    My boss used to say taxation is good, I wish I ws paying £1Million in tax, because it means I’d be taking £1Million home.

  8. I think this is an interesting idea, the good thing about (politically) it is it allows for more revenue to be raised and the council tax freeze to be maintained (not that I support the freeze).

    Soosider makes a good point though, the problem is that this will hit plenty of families on low or average incomes because there isn’t a strong correlation between council tax band and income.

    The other problem with this is you’d need primary legislation and a full revaluation, both things are politically undesirable and will also take time.

    I propose an alternative:

    In April 2013, council tax benefit will be devolved to Scotland and cut by 10% at the same time, giving councils a tough choice between cutting benefits for the poorest or cutting services.

    On the other hand, we are no longer tied in to the UK Government’s council tax benefit rules.

    So how about we let council tax go up, by say 10%, but we write into the new council tax benefit rules that any household on average or below average incomes will continue to have their council tax frozen.

    That way we only increase council tax for households on above average incomes, and the extra money can be used to offset the cuts to council tax benefit and council budgets.

    This requires no primary legislation and could be implemented from April 2013.

    1. Its not easy – there will always be winners and loosers. The thing to do is to maximise the number of winners and minimise the number of loosers, and also to ensure that as many of the winners are those on lower incomes.

      More extensive modelling would need to be done, but my point is that something like this could be introduced relatively quickly.

  9. So no correlation between the use of council services and the payment for same. Council tax to continue to be assessed purely on size of house with no consideration on ability to pay. Just a re-jig to make those with larger houses having to subsidise those with smaller ones.

    Now I know that this is a temporary proposal but I would much rather it be more radical than ‘tax the rich’.

  10. Congratulations on almost succeeding with reinventing the wheel. You’re getting close to domestic rates. A few more iterations and you’ll be there.

    This is not to say that reinventing rates is progress. A property tax is a property tax is a property tax. It isn’t a tax on wealth, income or consumption but one of the relatively uncommon class of taxes on ownership (other examples include cars and TVs). Like the taxes on cars and TVs its also one the few taxes where people get a bill through the post. And because only rich people (and the self-employed) otherwise experience the delight of sending a big cheque to HMRC every so often, then for those people who do not have a high income and accumulated wealth council tax will seem much more significant than the less visible taxes on income and consumption.

    I’m sure you easily could come up with a system which was just as bad or worse than local property taxes – and we know that poll tax is certainly worse because it adds “hard to collect” to the mix – but why not come up with a better system instead? There’s no urgency after all. You’re not going to be in a position to implement any new ideas anytime soon.

  11. One of the areas that I disagreed with the SNP was on their LIT idea.

    We are taxed supposedly on our wealth. As it should be.

    However, wealth is not singularly defined by income. There is a wide mix of factors that create wealth.

    This should be reflected in a mixed tax system. Property value needs to be taken into account when reflecting what tax a person should pay. I am broadly in favour of the tax system as it stands.

    It has been repeatedly abused, however, by years of council administrations and the council freeze was a good idea of trying to redress that.

  12. yes, agreed, let’s have council tax bands from A to Z where A costs £100 a year and Z costs £10,000 a year (or whatever figures you like), there are so many bad taxes to get rid of, it doesn’t really matter.

    Of course Housing Benefit is a non-issue, people who can’t afford the new council tax just have to trade down to something they can afford.

  13. This of course requires a revaluation. Pity John forgot to mention that. After 5 years in opposition, and it is still policy on the hoof. Do you see the problem?

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