Council Tax
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The Council Tax is the main form of local taxation in England, Scotland and Wales. It is paid by residents to the local authority. It was introduced in 1993 (by way of the Local Government Finance Act, 1992) as a successor to the unpopular Community Charge or Poll Tax, introduced in 1989 in Scotland and in 1990 in England and Wales.
The base for the tax is residential property. Each dwelling is allocated to one of eight bands coded by letters A through H on the basis of its assumed capital value (as of 1 April 1991). Each local authority sets a tax rate expressed as the annual levy on a Band D property inhabited by two liable adults. This decision automatically sets the amounts levied on all types of households and dwellings. Single adults living alone are entitled to a 25% discount.
As of 2006, the average annual levy on a property is £1,056 (the average Band D tax is £1,268)[link]
The government had planned to revalue all properties in England in 2005 (the first revaluations since 1991) but, in September 2005, it was announced that the revaluation in England would be postponed until 2009 or 2010[link]. At the same time, the Terms of Reference of the Lyons Inquiry were extended and the report date pushed out to December 2006. In Wales, tax bills based on the property revaluations done using 2003 prices were issued in 2005. Because of the surge in house prices over the late 1990s and early 2000s, more than a third of properties in Wales found themselves in a band higher than under the 1991 valuation. Some properties were moved up three or even four bands with consequent large increases in the amount of council tax demanded. Some properties were moved into new Band I at the top of the price range. Only 8% of properties were moved down in bands. However, a large shift of properties between bands will cause a shift in the allocation of the charge between bands, and the tax levied for each particular band will then drop, as the total amount collected will remain the same for each authority (see 'calculation of amount' below).
Between the wholesale revaluations, a major change to a property (such as an extension, or some major blight causing loss of value) can trigger a revaluation to a new estimate of the value the property would have reached if sold in 1991. Newly constructed properties are also assigned a nominal 1991 value.
Although it is the only tax which is set by local government, the Council Tax contributes only a small proportion (25%, on average) of local government revenue. The majority comes from central government grants and from business rates which are collected centrally and redistributed to local authorities.
Calculation of amount
Council Tax is divided into a number of components. Depending upon where the dweller lives, there can be a separate charge made by the Greater London Authority, County Councils, Police Authorities, Fire Authorities, Transport Authorities, National Park Authority, Olympic Delivery Authority, District Councils, Scottish Water and Civil Parishes. These all set their precepts independently.
Each of the levying authorities sets a precept (total amount) to be collected for their area.
This is then divided by the number of nominal Band D properties in the authority's area (county, district, national park, etc.) to reach the Band D amount.
(The nominal Band D property total is calculated by adding together the number of properties in each band and multiplying by the band ratio. So a 100 Band D properties will count as 100 nominal Band D properties, whereas 100 Band C properties will only count as 89 nominal Band D properties.)
Each collecting authority (district/borough council or unitary authority) then adds together the Band D amounts for their area (or subdivisions of their area in the case, for example, of civil parish council precepts) to reach a total Band D council tax bill
To calculate the council tax for a particular property a ratio is then applied. A Band D property will pay the full amount, whereas a Band H property will pay twice that.
There may be further modifiers in certain circumstances, for example a discount for unoccupied property, a 25% discount for single occupants, or a total dispensation for diplomatic residences.
Bands
In England, the council tax bands are as follows :
| Band | ValueNominal value as at 1991 | RatioThe ratio governs the relationship between the bands. For example, a Band B property will pay 78% of the charge set for a Band D property in the same area. | Ratio as % |
|---|---|---|---|
| A | up to £40,000 | 6/9 | 67% |
| B | £40,001 to £52,000 | 7/9 | 78% |
| C | £52,001 to £68,000 | 8/9 | 89% |
| D | £68,001 to £88,000 | 9/9 | 100% |
| E | £88,001 to £120,000 | 11/9 | 122% |
| F | £120,001 to £160,000 | 13/9 | 144% |
| G | £160,001 to £320,000 | 15/9 | 167% |
| H | £320,001 and above | 18/9 | 200% |
In Wales, the bands were re-set on April 1, 2005 by the National Assembly for Wales, based on 2003 valuations. In addition to revising the band boundaries upwards, an extra band was added.
| Band | ValueNominal value as at 2003 | Pre-2005 value | Ratio | Ratio as % |
|---|---|---|---|---|
| A | up to £44,000 | up to £30,000 | 6/9 | 67% |
| B | £44,001 to £65,000 | up to £39,000 | 7/9 | 78% |
| C | £65,001 to £91,001 | up to £51,000 | 8/9 | 89% |
| D | £91,001 to £123,001 | up to £66,000 | 9/9 | 100% |
| E | £123,001 to £162,000 | up to £90,000 | 11/9 | 122% |
| F | £162,001 to £223,000 | up to £120,000 | 13/9 | 144% |
| G | £223,001 to £324,000 | up to £240,000 | 15/9 | 167% |
| H | £324,001 to £424,000 | £240,001 and above | 18/9 | 200% |
| I | £424,001 and above | 21/9 | 233% |
In Scotland, the current bands are
- Note: Northern Ireland still levies rates, the system of local taxation used in the rest of the United Kingdom before the implementation of the Community Charge. The Government is considering using Northern Ireland for a pilot project to replace council tax with a property "wealth tax" based on an annual charge of 0.78% of the value of the property. Such property valuations would be updated every five years.
Criticism
Council Tax is criticised for perceived unfairness in not taking into account the ability to pay (see regressive taxation). These critics point out that while the capital value of the property in which a person lives might give some indication of the relative wealth of the individual, it does not necessarily relate to current income.
This problem is most often raised in relation to pensioners. Two reasons in particular are cited for this.
Firstly, that they may have purchased their property many years ago, and so its capital value today might be only distantly attached to the price they paid for it. While, relatively speaking, an expensive property in 1960 is still likely to be expensive today, some areas have seen greater or lesser change in house prices over time (e.g. gentrification). An example might be a small worker's house in a rural area that had little value forty years ago, but today has a high desirabilty as a second home.
Secondly, the income of a pensioner today does not necessarily relate to their working income when a property was purchased. This is exacerbated by annual rises in the state pension of only a few percent, while Council Tax rises have been as much as 15% per annum in some years.
Critics also claim that Council Tax has a disproportionate impact on renters, or those occupying part-owned social housing. They are paying tax according to the value of a property that they may not have been able to afford.
Whilst the tax may have regressive characteristics, supporters point out that there is a significant means tested benefit regime in place which offers rebates to those on low incomes. This has the effect of making the tax less regressive.
The Liberal Democrat Party have proposed a system of local income tax to replace Council Tax. Critics of that suggestion have claimed that administering such a system independently of the national tax system would impose significant costs for government and business would significant erode the value gained from it as a source of local government income. Conversely, administering a local income tax as part of the national tax system would leave local taxation entirely under the control of central government.
Another alternative scheme would be to allocate all funding directly from central government finances - already around 75% of local authority income is from central budgets. The biggest argument against this is that it removes fiscal independence from local government, making them mere service providers. However, the doctrine of parliamentary sovereignty and the lack of any established constitutional support for local government makes the practical independence of local government questionnable at best.
Some supporters of Council Tax also point out that there is limited land in Great Britain, and high demand of housing in many areas. They would claim the Council Tax acts as a form of land or property occupation tax, and therefore acts as a disincentive against occupying a larger home than necessary - for example pensioners whose children have since left home and could move to a smaller property.
External links
- [Council Tax], from the Valuations Office Agency
- [IsItFair - the UK Council Tax Protest Group]
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