Council tax is broken. Local authorities, MPs, think tanks, economists and households understand this. It is fundamentally a regressive tax based on inaccurate valuations conducted more than 30 years ago, which distorts housing markets and drives millions into poverty annually. The government knows this. Indeed, the Chancellor recognised it when he looked to alleviate our present cost-of-living crisis by providing modest council tax relief back in February. However, successive governments have been pussyfooting around the problem for decades.
The latest example of this is the recent consultation conducted by the levelling up, housing and communities committee into council tax collection. The issue here is a tough one. If councils collect the tax they are owed, people will be forced into poverty. If they do not enforce collection, councils will be unable to provide the services that they are obliged to provide. This has been worsened in the past ten years by government intervention and the decision to replace the council tax benefit (CTB) with local council tax support, which resulted in councils now only receiving 90% of their previously forecast CTB budgets. This amounts to a £15bn cut in government support to councils between 2010 and 2019.
Compounding the issue, many individuals are not even aware of the reliefs that might be available, and councils across the country do not always have the resources and inclination to help households, simply rushing to enforcement when payment is not made. Indeed, a survey conducted by the Money and Mental Health Policy Institute revealed that 34% of individuals who are eligible for discounts on their council tax bill are not aware of them and 82% were not provided this information by the council in their standard communications.
To make matters worse, economising will not be sufficient. Citizens Advice has recently revealed that 53% of the people that they help with their council tax bills have a deficit budget. This means that their income is not sufficient to meet the basic costs of living.
These problems are very real and should be taken seriously. However, all of them could also be addressed by reforming the root of the problem – council tax itself. As Dukes Bailiffs admitted in their submission to the committee, council tax is regressive. Households are not taxed based on their ability to pay, but on the 1991 value of their home and on the area in which they live. This means that local authorities need to impose tax levels on their residents to cover important services, such as adult social care, regardless of the wealth within those communities. For this reason, an £8m townhouse in Westminster ends up paying less council tax each year than a £150,000 home in my constituency of Easington in County Durham. Inevitably, this results in many struggling to pay their bills. This is part of the reason why council tax arrears grew by 51% (more than £1.2bn) between April 2013 and March 2020 in England alone.
Maintaining this heinous system is particularly frustrating given that solutions are being offered that are fully costed, hold bipartisan support and would provide massive relief for the vast majority of individuals across the country. One such policy that meets these requirements is the proportional property tax designed by Fairer Share. Rather than relying on local discretion based on outdated property values, this would tax all households a flat 0.48% rate on up-to-date values. 77% of households across the country would enjoy an average annual tax cut of £556.
However, it is particularly beneficial for those suffering most. Research by Landman Economics found that the vast majority of the least well-off in every region of England would benefit from this reform. Consequently, they estimate that this reform alone would immediately lower poverty by 0.8% across the United Kingdom.
Of course, with any reform there are winners and losers, but Fairer Share’s plan does a good job of ensuring that the impact on those who may pay more is minimised. Any increase is capped at £1,200 a year – a manageable £100 a month – and households are allowed to defer payment until they are in a position to pay or have sold their house.
Moreover, it is much fairer than the current system that mandates that anyone in arrears must pay the entirety of their debts or face potential prison sentences. Indeed, in 2017-18, more than 300 people were imprisoned for non-payment of council taxes, with another 6,278 receiving suspended sentences. It is widely believed that the days of debtors’ prisons are gone, but that is far from the case.
Whilst it is encouraging that collection reform is being considered by the levelling up committee, this simply is not enough. Council tax is a fundamentally punitive tax that hurts families across the country for no good reason. It is essential that the government stops tweaking and looks at fundamental reform. Fairer Share’s plan would be a great place to start.