Council tax
What is it?
Council tax is charged by local authorities to the occupiers of residential property.
Council tax was introduced in Great Britain in 1993 to replace the community charge (commonly known as the ‘poll tax’), which replaced domestic rates in 1990 in England and Wales (and in 1989 in Scotland). Rates date from at least 1601. Domestic rates have not been replaced in Northern Ireland. Council tax is applied to residential properties in eight bands based on 1991 property valuations (nine bands on 2003 values in Wales). Local authorities set local rates but the ratios and valuation bands are set centrally (by the Scottish and Welsh administrations outside England).
|
Property valuation band for council tax |
Wales |
Scotland |
England |
|||
|
Band upper limit (£) |
Ratio to |
Band upper limit (£) |
Ratio to |
Band upper limit (£) |
Ratio to |
|
|
A |
44,000 |
67 |
27,000 |
67 |
40,000 |
67 |
|
B |
65,000 |
78 |
35,000 |
78 |
52,000 |
78 |
|
C |
91,000 |
89 |
45,000 |
89 |
68,000 |
89 |
|
D |
123,000 |
100 |
58,000 |
100 |
88,000 |
100 |
|
E |
162,000 |
122 |
80,000 |
131 |
120,000 |
122 |
|
F |
223,000 |
144 |
106,000 |
163 |
160,000 |
144 |
|
G |
324,000 |
167 |
212,000 |
196 |
320,000 |
167 |
|
H |
424,000 |
200 |
212,001+ |
245 |
320,001+ |
200 |
|
I |
424,001+ |
233 |
- |
- |
- |
- |
What’s the problem with it?
Council tax discourages residential property improvements and construction.[1] To the extent that council tax mimics a consumption tax similar to VAT on other consumption goods, council tax is not especially a problem in this way any more than VAT is on other areas of consumption. But that doesn’t mean it is not harmful, just that it is not especially harmful. It also falls on occupiers who may find bearing the burden of increases difficult to plan for if (like pensioners) they are on fixed incomes.
Council tax breaches three of the four principles of taxation identified by Adam Smith in 1776. It is inconvenient, because it does not coincide with a transfer of cash (unlike VAT or income tax). It is inequitable, because it is not proportionate to either the value of the property or the income of the taxpayer. And, to some extent, it is uncertain, because the level cannot easily be predicted in advance. While income tax rates and VAT have remained relatively stable over the past 20 years, council tax rates have varied markedly, especially at the local authority level rather than national averages, which mask the extent of rises experienced by those unfortunate enough to live in the worst local authority areas.
Most starkly, the system is plainly nonsensical. Properties are assessed in bands based on what they would have been worth over 30 years ago.
What should be done?
Councils should cut their rates, at least in real terms (after adjusting for inflation).
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[1] Valuation Office Agency, Council Tax band changes, 22 January 2016, www.gov.uk/guidance/council-tax-band-changes, (accessed 8 November 2022).