Council tax system is ‘highly regressive’

The IPPR think tank has warned that the council tax system in London is becoming ‘increasingly unsustainable as a source of local government finance’ and is in need of ‘fundamental reform’.

The report, A poor tax: Reforming council tax in London, says that the tax could be a sustainable means of funding local government services while also functioning as a progressive tax on property wealth. However, at present it is highly regressive in relation to property value as well as representing an unduly large burden in terms of income for poorer Londoners.

Accounting for council tax support, the burden of council tax on London’s poorest households is more than six times greater (8.1 per cent) than on those in the highest decile (just over 1.3 per cent).

Setting out the case for change of the council tax system in London, the IPPR uses the paper to outline some of the views of those who live in the capital and pay council tax in the system as it is, and how they would like to see it change, as well as a three-staged approach to reforming the system.

Firstly, the devolution of council tax to the capital, mainly due to London’s unique housing market, the overly centralised system in the UK and because the public are more likely to support a subnational approach. Secondly, immediate reforms to the system to protect the poorest Londoners, who are being hit by a tax that increasingly resembles the poll tax. Third, in the longer term, the IPPR argues for the replacement of the existing banding system with a proportional property tax, with one rate, to be applied across London, which should be calculated on up-to-date property values.

Peter John, chair of London Councils, said: “Basing taxation on property values from 1991, which are now hugely out of step with current house prices in the capital, will only become more regressive as time goes on. We agree that reform is long overdue and strongly support devolution of council tax to London government.”