Council taxes in Britain are expensive and provoke many of the complaints that were made about the rates in Ireland before they were abolished, but they remain central to funding local services
THE EXISTING council tax system operating in England, Scotland and Wales was introduced in 1993, while Whitehall was still smarting from the riots provoked by Margaret Thatcher’s poll tax, the worst in a century.
In March 1990, when Thatcher’s Conservative government introduced the tax – a levy on property imposed regardless of wealth – 100,000 people turned out for a protest in central London that quickly turned violent. The tax was eventually dropped and replaced with the council tax.
Unlike the poll tax, the council tax is a residential property tax, with discounts offered for those living alone, under-18s, apprentices, full-time students, the severely mentally disabled, live-in carers – and diplomats.
Each dwelling is given a band listing – from A to H in England and Scotland, which values properties in each according to a 1991 valuation, and from A to I in Wales, which carried out a controversial revaluation in 2003. The Welsh experience frightened the then Labour government from drawing up new bands for England, because more than a third of homes in Wales – which had gone up in price in the 1990s and 2000s – ended up with significantly higher bills.
Despite its unpopularity, the collection rate for the tax – which has been frozen by a diktat from the Conservatives-Liberal Democrats government since it entered power in May 2010 – is high, averaging approximately 97 per cent. However, it contributes just a quarter of the funds needed by local councils, with the rest coming from direct government grants and business rates. The latter are still set by Whitehall – although plans are afoot to give more local control.
So far councils have heeded the orders from London to freeze the council tax, although many of them fear that the one-off compensatory payment made by Whitehall will not be renewed, leaving them with a permanent gap in their finances.
The money is used to pay for all forms of local services, from schools to street lighting and includes rubbish-bin collections, although the tax also includes a specific payment to cover the cost of providing police and fire brigade services.
In the eyes of its opponents, the council tax is unfair and regressive, since it is based on an outdated valuation and not on an individual’s current ability to pay, while a band H property will never cost more than three times one in band A, even if it is on Millionaire’s Row.
Indeed, figures suggest that the unfairness in the system is getting worse since poorer people in 2008-09 used 6.2 per cent of their incomes to pay the tax, up from 4.6 per cent in 2002-03, while those at the top end paid just 1.6 per cent of theirs.
Equally, it discriminates against renters because council tax is paid by the occupant, not the house-owner. However its supporters contend that whatever its faults, it is administratively simple compared to the difficulties that would have to be overcome to create a local income tax.
Detractors point out that the tax’s weight varies, depending on where one lives: a homeowner with a band A property in 2011 paid £872, while a Londoner on average paid £938, while someone living in Yorkshire and the Humber paid £1,007.
The effects of an outdated valuation regime are particularly noticeable in some places, with a band A property in Wandsworth facing a £431 charge, or an equivalent in Westminster paying £512, while a similar property in Richmond-on-Thames, if one could find one, faced a £1,153 bill.
Warning that the unfairness in the tax is not visible even to those who know individual councils well, Liane Hoogland of the University of Sheffield’s department of geography writes: “It is estimated that over two million predominantly low-income households struggle to pay [it].”
The house valuations have been repeatedly questioned. In 2007, a Trevor McDonald programme on ITV showed that many homes had been valued by inspectors, who came up with a figure as they drove by in a car. In 2008, it was shown that 70,000 people had successfully appealed their house-banding.
One campaign body, Is It Fair, meanwhile, warns that some district and borough councils have off-loaded responsibility for some of their non-statutory duties on to town and parish councils, leading to a sharp rise in the charges that these bodies – which do not exist everywhere – have to levy.
Faced with pressure from councils in Britain’s countryside, the Cameron government has offered signals that it is prepared to give them power to levy full council taxes on second homes, rather than see them required to offer deductions.
Homeowners must pay a separate charge for water and sewerage, though since the privatisation spurred by Thatcher these are payments made to private companies, regulated by Ofwat.
Last year, the average homeowner in Britain paid £325 for a metered service and £379 for an unmetered service to companies such as Southern Water or United Utilities, which increased their fees last year by 6.4 per cent and 3.95 per cent respectively.
Despite the problem, the principle of the council tax appears not to be seriously contested. Instead, campaigners have tended to target the pay deals awarded to local authority chief executives and complain about examples of local waste.
Homeowners may grumble, and worse, about the tax, but few appear to believe that local authorities could function without a local contribution. Annual battles though over the setting of the rate are legion and likely to get more bitter.
Under new localism legislation, piloted by communities secretary Eric Pickles and signed into law this month, councils will have to hold a referendum in future if they want to increase the charge by more than 3.5 per cent in any one year.
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