Is Council Tax Unfair? - Carrington Dean stars-five-icons

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20.03.2018

Is Council Tax Unfair?

Council Tax bills look set to rise again this April, throughout the country, and questions are being asked about whether the way this tax is calculated actually makes sense. This will be the steepest rise for 14 years for many areas, climbing twice as fast as salaries, in an attempt to plug the gap in local funding left by 40% cuts in local funding brought about by the last six years of austerity. According to Rob Whiteman, Chief Executive of the Chartered Institute of Public Finance and Accountability, “This sharp rise in council tax across the country reflects the enormous financial pressures many local authorities are currently under”.

Many organisations and commentators believe the current council tax system is unfair, outdated, and ripe for reform. Below we explore what this could mean, and what you should do if you find yourself unable to keep up with your own council tax bill.

Problems with the current System

The amount of council tax you are expected to pay currently depends upon the value of your home. In theory, the lower the value, the lower the council tax bill. Rather than working on an individual basis though, property values are split into eight bands, labelled A-H. Band A is the cheapest, H the most expensive.

One problem with this method of taxation is that properties with significantly different values can end up paying exactly the same amount of tax. This isn’t helped by the fact that current council tax bands are based on valuations carried out over 25 years ago, and many were inaccurate to begin with, because the process of sorting properties into their bands was so rushed. Another issue is how much the amount of tax paid varies from area to area. For example, the council tax on a seven bedroom house worth £17 million in Westminster would only accrue a £1,376 annual council tax bill, whilst the occupants of a house worth £150,000 in Nottingham would be expected to fork out £1,645 each year. This is an extreme example, but discrepancies such as these suggest that the current system is skewed in favour of the richest members of society, whilst squeezing the incomes of poorer households.

Potential Changes

Labour’s Shadow Communities Secretary, Andrew Gwyne, proposes a “radical” alternative to council tax, describing the current system as “broken” and “not fit for purpose”. Labour’s 2017 manifesto hinted that this “radical” reform could be to scrap council tax altogether in favour of a tax on land that would target the richest families. Laura Gardiner, principal researcher of the Resolution Foundation, concurs that the current system bears “only a very weak link to property values” and is “outdated and regressive”. The Joseph Roundtree Foundation reached similar conclusions, and recommend a tax based on the value of individual properties instead. The charity believes that this change would save the poorest 10% of households around £202 every year, and make the billing system fairer. The Scottish government has also been considering changes which would make for greater proportionality when it comes to calculating council tax, by increasing the amount paid in the higher bands, E-H.

Another proposed reform to the system is the introduction of the so-called “mansion tax”. This would consist of a surcharge of 1% of a property’s value if it is worth £2 million or more, and a similar 3% surcharge for properties worth over £3 million. Broader changes could see every property’s council tax bill charged at 0.5% of its value. This would mean that someone living in a property worth £100,000 paying £500 each year, whilst someone inhabiting a property worth £1 million would pay £5,000.

Coping with your Council Tax Bill

Council tax arrears continues to be one of the most worried-about forms of debts. Councils tend to take decisive action quite quickly when your account falls into arrears, so if you find yourself unable to pay, it is vital that you get in touch with your council as soon as possible. Explain that your circumstances have left you unable to meet your current payment obligations, and offer to pay what you owe in smaller instalments. If your council is reluctant to help, it is best to seek independent advice – a debt advisor may even be able to speak to the council on your behalf.

If paying your bill is a recurrent issue, check online to see if you are eligible for an exemption or discount. Some common discounts include:

  • Low income discount
  • Exemption or discount for disability
  • 25% single person’s discount
  • Full-time student exemption

Since so many properties were incorrectly valued when they were first sorted into bands, you may also be able to apply for your property’s band to be changed. If similar properties near-by are placed in lower bands, it could be that your band could be lowered too.

For more advice on dealing with council tax arrears and other debt, you can receive confidential advice from an advisor at Carrington Dean by calling 0141 326 0392.