By Andrew Dixon, Founder and Chairman of Fairer Share.
Council Tax reform is finally being taken seriously, and with that comes a welcome debate about how best to do it. Anthony Breach at Centre for Cities has made a thoughtful contribution, arguing that Council Tax should become much more proportional while remaining locally controlled.
There is a great deal we agree on. Council Tax is regressive, outdated and still based on property values from 1991. Centre for Cities’ own examples illustrate the absurdity: modest homes can face much higher effective tax rates than vastly more valuable properties, both within individual towns and across the country.
We also agree on the fundamental principle that what people pay should bear a much closer relationship to what their property is actually worth. Where we differ is over how to achieve it.
A fairer Council Tax… but still Council Tax
Centre for Cities proposes giving councils much greater freedom to vary rates between Council Tax bands. This would allow individual authorities to make their systems considerably more proportional while retaining Council Tax as a locally controlled source of revenue. There are good arguments behind this approach. Centre for Cities wants councils to retain control over an important local tax rather than becoming more dependent on central government, and it wants councils to benefit financially when development and economic growth expand their local tax base. In a country as fiscally centralised as Britain, both are legitimate objectives.
The question is whether Council Tax itself is the right mechanism through which to achieve them. Allowing councils to vary rates between bands could undoubtedly reduce regressivity within individual local authority areas. But if each authority is expected to raise broadly the same amount it does today, the enormous differences in property values and tax bases between different parts of England remain embedded in the system. That risks replacing one inconsistent system with hundreds of somewhat fairer, but still inconsistent, ones.
Fairer Share starts from a different principle: the tax a household pays should reflect the value of its property, while the funding a council receives should reflect the needs of the community it serves. We don’t believe those two questions have to be answered by the same mechanism.
Local government finance is a separate question
Centre for Cities understandably wants councils to have secure revenues and stronger incentives to encourage economic growth. We agree. But neither objective requires two similarly valued homes to face substantially different property tax rates simply because they happen to sit on opposite sides of a council boundary. Government already redistributes resources between local authorities because councils have vastly different tax bases and spending needs. A national Proportional Property Tax could establish a consistent relationship between property value and tax liability, while a fair funding formula determines how revenues are distributed.
That is arguably more transparent than asking Council Tax simultaneously to be a fair household tax, a mechanism for funding local services, an equalisation system and an instrument of fiscal devolution.
Why stop at bands?
There is another fundamental question. If we agree that property taxation should become proportional, why retain the band structure at all? Bands are ultimately a crude substitute for taxing actual property values. Two houses with significantly different values can sit within the same band and pay identical Council Tax, while properties either side of a band boundary can face different bills despite being worth almost the same amount.
Fairer Share’s proposal removes those arbitrary steps. Under a genuinely proportional system, if one property is worth 10% more than another, its underlying tax liability is 10% higher. Regular mass appraisal would also prevent the system becoming hopelessly outdated again. The lesson of the past 35 years is that if governments postpone revaluation for long enough, the political difficulty of eventually doing it becomes greater and greater.
And then there is Stamp Duty
This is perhaps the biggest difference between the two approaches. Centre for Cities is principally trying to repair Council Tax. Fairer Share is trying to reform the taxation of residential property as a whole. Stamp Duty doesn’t simply raise revenue; it taxes people for moving. It penalises a growing family needing more space, an older household wanting to downsize and someone moving across the country for a better job. It gums up housing chains, reduces mobility and discourages more efficient use of the homes we already have.
That is why Fairer Share proposes replacing Council Tax and residential Stamp Duty together with a single annual Proportional Property Tax based on current property values. Rather than taxing people heavily when they move and then charging an annual tax bearing little relationship to the value of their home, we would spread the burden more fairly across property ownership. More than three-quarters of households would pay less, with an average saving of around £550 a year, while transitional protections would prevent households facing sudden unaffordable increases.
Interestingly, Centre for Cities itself acknowledges that there is potentially a case for replacing Stamp Duty as part of reform. We think that opportunity should be seized.
Devolution and property tax reform can coexist
None of this requires abandoning the case for greater devolution. Councils and mayors can be given substantially greater fiscal autonomy without requiring households in similarly valuable homes to face fundamentally different property tax rates. Indeed, there is a much wider debate to be had about which taxes and revenues should be devolved to local government. Our argument is simply that an outdated and highly regressive Council Tax is a poor foundation on which to build that greater autonomy.
Nor should reform mean imposing sudden increases on households. Fairer Share proposes transitional protections, including a cap on annual increases for primary residences and deferral for people who are asset-rich but income-poor. Fundamental reform can be both ambitious and carefully managed.
An opportunity to go further
Centre for Cities’ proposals would improve the existing system. Greater proportionality would be considerably fairer than the Council Tax we have today, and its emphasis on strengthening local government deserves serious consideration. Our argument is that, having finally opened the door to fundamental property tax reform, we shouldn’t stop halfway through it.
Rather than redesigning the rates within Council Tax while retaining bands and Stamp Duty, we have an opportunity to replace both taxes with a single proportional charge based on current property values, protect households through the transition and ensure councils are properly funded through a transparent funding formula. There is now considerable common ground that the status quo cannot continue. The remaining question is how ambitious we are prepared to be in replacing it.
Centre for Cities has produced a serious proposal for making Council Tax fairer. Fairer Share believes this is the opportunity to replace it altogether and scrap Stamp Duty at the same time.
If you agree, you can help. Email your MP to ask them to back a fairer system, at fairershare.org.uk/email-your-mp