Thursday, May 04, 2023
A brave move
The Welsh Government's decision to proceed with a council tax revaluation in the year before Senedd elections is a necessary but brave move.
Unlike England and Scotland, Wales has done this before in 2003, so at least our properties are being taxed on a reasonably up-to-date valuation. Elsewhere in the UK, council tax bands are based on 1991 values.
As the Minister adnits there will be winners and losers in any revaluation, and back in 2003 the losers were very vocal and the political journey less than comfortable.
The problem with Council Tax, of course is that it can be quite regressive, not least as property values do not necessarily equate to income. If done properly, some of these bumps can be ironed out.
Unlike England and Scotland, Wales has done this before in 2003, so at least our properties are being taxed on a reasonably up-to-date valuation. Elsewhere in the UK, council tax bands are based on 1991 values.
As the Minister adnits there will be winners and losers in any revaluation, and back in 2003 the losers were very vocal and the political journey less than comfortable.
The problem with Council Tax, of course is that it can be quite regressive, not least as property values do not necessarily equate to income. If done properly, some of these bumps can be ironed out.
The question is, whether Ministers are prepared to carry out the root and branch reform required, or just tinker with the system in the hope that their efforts will make some difference.
The most radical proposals were outlined back in 2014 by Professor Gerry Holtham, I reviewed his paper at the time, on the IWA blog here.
Holtham argued that council tax is essentially regressive, but because it is a property tax it is hard to avoid, it does not distort economic activity and it is easily understood. Its one disadvantage is that it requires regular revaluations to remain relevant.
Gerry Holtham explained that property values are increasing at a much slower rate than house prices, so that the average council tax on the lowest band, whose properties are worth up to £44,000 amounts to nearly 1.9% of the value of the property. For properties worth over £424,000, the tax is just over 0.5% of capital value.
The solution proposed by his paper is not to throw out the tax altogether but to reform it so as to ‘smooth out the indexation’ and to consider introducing additional tax bands. Gerry Holtham argued that this would lead to gradual change and do away with the need for revaluation.
He suggested that a fairer way to levy the tax would be to make it a flat rate plus a proportion of the value of the property, less a property allowance. That would yield similar revenue to the current tax where everybody would end up paying a fraction over 1% of the band value. In other words the tax would be rebalanced so that those in the most expensive properties would pay more.
He said that taxpayers in band D would pay just over a pound a week more, whilst those in band A would see their bills fall dramatically. This would lead to a fall in the cost of Council Tax benefit, which is well over £250m a year in Wales and growing. Every time a council bills taxpayers more, a proportion of the revenue gained has to go to subsidising those who can't afford to pay it.
Holtham suggested that the increase in taxation for those in the higher bands could be ameliorated by other measures. These include removing the single occupant discount and increasing the tax on second homes, a measure already in force in many authorities. In Gwynedd, 10% of the housing stock consists of second homes.
So far the Minister has only suggested that she is looking at adding additional council tax bands at the top of the scale, and has said that there will be regular revaluations from now on. Perhaps she needs to look again at Gerry Holtham's more radical proposals to avoid that future pain, and achieve a fairer outcome first time.
The most radical proposals were outlined back in 2014 by Professor Gerry Holtham, I reviewed his paper at the time, on the IWA blog here.
Holtham argued that council tax is essentially regressive, but because it is a property tax it is hard to avoid, it does not distort economic activity and it is easily understood. Its one disadvantage is that it requires regular revaluations to remain relevant.
Gerry Holtham explained that property values are increasing at a much slower rate than house prices, so that the average council tax on the lowest band, whose properties are worth up to £44,000 amounts to nearly 1.9% of the value of the property. For properties worth over £424,000, the tax is just over 0.5% of capital value.
The solution proposed by his paper is not to throw out the tax altogether but to reform it so as to ‘smooth out the indexation’ and to consider introducing additional tax bands. Gerry Holtham argued that this would lead to gradual change and do away with the need for revaluation.
He suggested that a fairer way to levy the tax would be to make it a flat rate plus a proportion of the value of the property, less a property allowance. That would yield similar revenue to the current tax where everybody would end up paying a fraction over 1% of the band value. In other words the tax would be rebalanced so that those in the most expensive properties would pay more.
He said that taxpayers in band D would pay just over a pound a week more, whilst those in band A would see their bills fall dramatically. This would lead to a fall in the cost of Council Tax benefit, which is well over £250m a year in Wales and growing. Every time a council bills taxpayers more, a proportion of the revenue gained has to go to subsidising those who can't afford to pay it.
Holtham suggested that the increase in taxation for those in the higher bands could be ameliorated by other measures. These include removing the single occupant discount and increasing the tax on second homes, a measure already in force in many authorities. In Gwynedd, 10% of the housing stock consists of second homes.
So far the Minister has only suggested that she is looking at adding additional council tax bands at the top of the scale, and has said that there will be regular revaluations from now on. Perhaps she needs to look again at Gerry Holtham's more radical proposals to avoid that future pain, and achieve a fairer outcome first time.
