Council Tax Reform: A Call for Adjustments

While discussions surrounding anticipated tax increases are prevalent, one crucial tax has received less attention. Although it may not be a widely held view, I propose that instead of reducing inheritance tax exemptions or further cutting the dividend allowance, we should consider raising council tax.

This suggestion aligns with the recent recommendations from the Organisation for Economic Cooperation and Development (OECD) to the chancellor, Rachel Reeves.

In a report examining this week’s budget review, the OECD advocated for a “balanced approach” that combines targeted spending reductions with revenue-generating strategies, such as “re-evaluating council tax bands based on current property values.”

I fully support this perspective.

In Wandsworth, a borough in southwest London, the typical income is £74,000, which is over 60% more than in Barking and Dagenham, where the average income is £46,000, as per Trust for London. In certain areas of Wandsworth, like Clapham Common West, average incomes soar to £108,000—nearly three times the national average.

Contrastingly, this borough has the lowest council tax rates nationwide. A household in a Band D property pays merely £990 annually in council tax.

In comparison, households in Pendle, Lancashire, face a council tax of £2,535 for the same Band D category, despite an average income of only £34,400.

The issue with council tax lies in the outdated system it relies upon.

Established in England and Wales by the Local Government Finance Act 1992, council tax became effective on April 1, 1993, as a replacement for Margaret Thatcher’s unpopular poll tax.

Properties were assigned to one of eight tax bands—ranging from A to H—based on their value as of April 1991 for England and Scotland, while properties in Wales were assessed against April 2003 values. Northern Ireland’s rates are connected to 2005 property values.

This system was implemented hastily, with local estate agents tasked with conducting drive-by valuations to allocate properties into bands. Due to time constraints, many properties were only briefly observed.

Last year, we heard from Chris Husson-Martin, an estate agent involved in these valuations. He stated, “We were provided with lists of villages and would spend an afternoon driving around to assign bands without entering properties. It was far from a scientific method.” 

Since that initial valuation, council tax bands have not been altered, even as new housing developments and significant property renovations have emerged.

As a result, we find ourselves with an assessment system based on outdated estimates. New properties have their bands determined by the Valuation Office Agency, which uses historical market values from 1991 or 2003, employing a convoluted calculation process.

This outdated structure does not reflect current realities in the housing market. For instance, in London and the southeast, average property prices have surged fivefold since those original assessments. Consequently, homeowners in these areas pay comparatively less council tax relative to their actual property values than those in areas where growth has been modest.

The Institute for Fiscal Studies, a reputable think tank, estimates that at least half of homes in England are currently misclassified in the wrong council tax band.

Further complicating this issue, less affluent councils have resorted to relying on council tax to support their finances while wealthier regions, like Wandsworth, have maintained a freeze on council tax rates for several years.

It is essential to conduct property revaluations, create more tax bands, and adjust them to reflect today’s housing market values rather than relying on figures from 34 years ago. Do I appreciate paying around £100 monthly for council tax? Certainly. Is it equitable? Absolutely not. My affluent neighbors and I in Wandsworth should effectively be contributing more.

How do you suggest we reform council tax? Feel free to share your opinions in the comments section below.