The Garrulous Jay – Rates And Riots

On the Saturday 31st March 1990 a protest in Trafalgar Square turned ugly. What became known at the Poll Tax Riots lead to 113 injured and 339 arrests. That day effectively consigned Thatcher’s despised flat rate local authority tax to history.

John Major replaced the Poll Tax with Council Tax in 1993: a revised levy that bore a remarkable resemblance to the ‘rates’ system the preceded the Poll Tax, with the amount people paid tied to the value of their property.

It is perhaps small wonder that the local government tax system has remained unchanged since then: with this particular tax carrying so much political baggage, governments of all party persuasions have given changing it a wide berth.

But many argue that Council Tax today is no longer fit for purpose. There is no doubt that it is both complex and outdated.

Most obviously the system that places different properties in to their respective bands, which determines what level of Council tax is charged, is based on house price values in April 1991.

Two facts illustrate the absurdity of this. First, the highest band H applies to properties that had a value of £320,000 or more. This means that any property that had a value above this level in April 1991 pays the same Council Tax within its local authority’s Council Tax framework, regardless of its value today.

Secondly, approximately 5 million new homes – equivalent to just under 20% of England’s total dwelling stock – have been constructed since April 1991. So the Valuations Office Agency (VOA) that ascribes Council Tax bands to properties has effectively had to back test valuations for around a fifth of England’s housing stock.

This issue is compounded by the disparity in house price inflation over the last 35 years. Making accurate comparisons is difficult, but by way of a rough example house prices in London have risen by a multiple of 5-10 times over this period, whereas the figure for those in Sunderland is more like 2-3 times.

The VOA and Local Authorities cannot take this into account when ascribing bands or levying Council Tax.

Nor does local government have any flexibility to vary how much properties in each band pay relative to the others. Each year the Council Tax for each band is set based on the Band D amount and a series of statutory multiples. For example, Band B properties pay seven ninths of the Band D rate, and Band H properties eighteen ninths.

And all this to calculate a tax that accounts for only around 55% of local authority funding, with the balance coming from government grants and business rates.

There has been considerable speculation that the upcoming Budget might feature a “mansion tax”. With Rachel Reeves looking for least worst options a reform of Council Tax, with a recalibration of the existing bands and the addition of new top-level bands might be a simpler and more politically palatable option.

Either way if feels like the Council Tax system is overdue a refresh.