How has council tax survived for 25 years?

20th April, 2018 4:26 pm

Over 25 years after John Major introduced council tax as a quick fix to replace the poll tax, Margaret Thatcher’s greatest political miscalculation, it has become a permanent fixture in England. Despite its clear problems, Labour’s 2017 manifesto did not pledge to replace council tax with an alternative but only committed to reviewing it.

The drawbacks of council tax are numerous. First, it is regressive. Based on the value of people’s homes rather than their incomes, it often his poorer people harder. It also unfairly penalises renters as it is a tax on the tenant rather than the property owner: whilst landowners are eventually going to benefit from the higher price of a property when they sell it, renters will have to pay a higher tax on it whilst they live there with no long-term gain.

Second, the banding system in England is based on valuations from 1991. That’s before some MPs started school – before a couple were even born. This leads to absurd situations whereby people in lower value banded properties in rural areas are charged more than residents of much higher value banded properties in parts of London, which are likely to have grown faster in value in recent years. Those in lower value rural accommodation are essentially paying more for less.

Yet local Labour Parties are unwilling to call for increases in council tax – even as a means to offset austerity. The fact that some local Labour Parties have either recently raised council tax to boost spending, like Birmingham, or have included council tax rises in their 2018 local election manifestos, such as Preston, should not disguise the fact that many others have argued for keeping lower rates. (Wandsworth, Trafford and Lambeth to name a few.) The problems with council tax are preventing Labour councils from using it to fight austerity effectively – therefore it needs to be replaced urgently.

It is not only the political fury faced by the Tories when they tampered with local taxes that has stopped Labour from tackling council tax. Labour is also hesitant to support any of the alternatives. The two main options are a local income tax, which would see local councils receiving revenue from income tax on top of what is already paid nationally, or a land value tax, which taxes landowners for the increase in value of the land they own.

The problem for Labour is that both of these alternatives to council tax would generate the greatest income per person in the wealthiest areas. Any means of redistributing from areas of greatest wealth to those of the greatest need would require involvement from national government to decide how much money an area should receive. That could turn councils into nothing more than pocket money institutions.

Denying the local electorate the ability to democratically decide local tax levels would leave councils less accountable. Local authorities must be responsible for how money is raised as well as spent – a blame game for poor service provision would otherwise follow.

Labour must now devise a new tax that can be applied fairly across the country and preserve local government accountability. Unfortunately such a levy would presumably be complex, which means selling it to the public could prove difficult.

With a lack of acceptable alternatives and the spectre of Thatcher’s disastrous poll tax still looming, council tax has been allowed to survive for a quarter of a century. But Labour needs to rise to the challenge and offer councils a new tax to help them recover from austerity.

Chris Warren is a Labour activist and policy and communications professional.

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