The UK’s council tax system is looking increasingly like the hugely controversial poll tax that ended Margaret Thatcher’s premiership with a disproportionate burden is being placed on poorer households.
The warning from the IPPR comes in an analysis of the situation in London published on Thursday, where the disparities are most glaring. The centre-left think-tank calls for a pilot of reforms in the capital to ease the strain on lower earners.
At present, the poorest Londoners pay 8.1 per cent of household income in council tax, while for those in the top income decile contribute just 1.3 per cent of their earnings, according to the analysis.
This disparity is mainly because property valuations, on which the system is based, have not been updated since 1991, while house prices have rocketed. But the inability of cash-strapped local authorities to offer the poorest full relief from the tax as was the case in the past, when the relief was funded by central government, is another factor. In contrast, councils are increasingly resorting to bailiffs to collect arrears from the growing numbers struggling to pay.
“To those people on low incomes, it will feel very much like the poll tax . . . It is just that the public and political reaction hasn’t been as visceral yet,” said Luke Murphy, associate director at IPPR, arguing that many people were being asked to pay council tax for the first time, and were unable to do so.
The discrepancy between rich and poor in London is greater than elsewhere in the country because house prices have grown faster and income inequality is high.
Households living in the capital’s lowest value properties now pay five times as much in council tax as a proportion of the property’s current value as those living in the highest value properties, IPPR said. Moreover, rates of council tax vary significantly between boroughs and bear little relation to house prices.
Criticism of the regressive nature of council tax is not new. There have been many calls for reform over the years, ranging from a relatively straightforward revaluation to more radical proposals such as a land tax.
The Labour party pledged a review of the system in its 2017 manifesto. However, politicians are very wary of making any change that could create large numbers of angry losers, and risk destabilising local authorities’ already fragile finances.
Council tax itself was introduced in 1993 to replace a flat-rate per capita levy on all adults, known as the community or poll tax. The shortlived tax, which was fully introduced by Mrs Thatcher in 1990, led to widespread protests and mass non-payment, and was a significant factor in the resignation of the prime minister months later.
The IPPR report attempts to chart a course through the political obstacles. It calls for the devolution of council tax to London boroughs, which could then introduce a capital-wide system to offer more relief for the poorest — funded by a surcharge on empty properties and second homes.
The longer term aim should be to replace the current system with a property tax proportional to the present day value of homes, to be levied on property owners, IPPR said. Its analysis suggested that a flat rate of 0.25 per cent would be fiscally neutral, with four-fifths of households gaining from the reform, and the top fifth paying more.
However, IPPR’s research also showed how difficult it would be to win public support for any reform. It found that most Londoners felt the current system was unfair, but there was little consensus on what should replace it.
The report said a new system would only work if it were phased in gradually. The think-tank said proposed reforms should include regular property revaluations, more generous benefits for those on low incomes, a mechanism for redistribution between the winners and losers among local authorities and enough funding to ensure improvements in local services.