‘Outdated and regressive’ council tax should be ditched

The Resolution Foundation has said that the government should consider scrapping the current ‘regressive’ council tax system in favour of a fairer system.

Home affairs examines how residential property is currently taxed, predominantly through council tax and stamp duty, as well as the options for reform. The paper argues that the relationship between council tax and property values is weakening, meaning that the existing format of council tax is increasingly operating as the ‘unpopular’ poll tax, which was abolished in 1991.

The similarities are due to council tax operating within wide bands with a single band covering significantly different property values and because regional variation has allowed some areas with more expensive properties to charge lower tax rates.

The Foundation’s report has examined several suggestions that have been made to reform the current council tax system, including: replicating the 2017 reforms implemented in Scotland across England and Wales – which involved increasing council tax rates in the top four bands – generating a little over £1 billion, and adding a ‘mansion tax’ surcharge of one per cent on the value of properties above £2 million and 2 per cent on the value of properties above £3 million, which would also generate just over £1 billion.

More radically, it also proposed an exactly proportional tax of 0.5 per cent of capital value which would raise £1.6 billion across Great Britain compared to council tax, a one per cent tax rate above a £100,000 allowance per property would mean no tax for the bottom 14 per cent of properties nationally and would make effective tax rates progressive above this, or a more progressive system of tax bands of one per cent above a regionally-specific tax-free allowance and a higher rate of two per cent on marginal property values above £500,000 would raise £8.4 billion.

Laura Gardiner, principal researcher at the Resolution Foundation, said: “Despite replacing the unpopular ‘poll tax’, council tax has come to look increasingly like it. It’s time we looked to abolish it. The council tax you pay is meant to be tied to the value of the property you live in, but when someone living in a property worth £100,000 pays a tax rate five times higher than someone living in a property worth £1 million, something has gone seriously wrong.

“Young families and those in relatively cheaper properties are losing out disproportionately. The government should implement a new system that is truly progressive and avoids the ludicrous situation of people in mansions paying little more, and in some cases less, than families living in tiny flats.”