Reforming the council tax system
As other aspects of property taxation have been reformed recently with the aim of establishing a more
efficient and fair system the opportunity has been created to also consider if the current system of
council taxation can be improved. The shortcomings outlined above suggest that reforming the council
tax system would generate much needed revenue while also distributing the burden more fairly.
One of the primary concerns with the existing system is its regressive nature. Modestly priced homes,
valued at just a fraction of a prime property, face a council tax payment which is not substantially lower
than that of the country’s most valuable properties. Under the current system a property in Band A pays
2/3 of the Band D council tax amount, while a Band H property pays twice what a Band D property would
pay. In 2014/15 the average Band A payment in England was £979 while the average Band H payment
was £2,936. This means that, for example, an occupier of a property that today is worth £227,000 (and
would be in Band A as in 1991 it was worth £80,000) would face an average council tax payment of £979.
A home which today is worth £4,000,000 and is in band H would be paying £2,936 on average. Hence,
while the prime property is worth more than 17 times the value of the modest one, it only pays three
times as much in council tax. Additionally, for the prime property the yearly council tax payment
represents 0.07% of the property value, nearly five times less than 0.4% for the modestly priced home.
The two primary ways to correct for this are to increase the number of bands, making the system more
progressive, and to conduct a revaluation which would more closely align property values with payment
amounts. In other words, those that have benefitted over the past two decades from above average
house price growth will become responsible for a slightly higher payment, while those whose homes
have increased in value below or in line with the average will not be dragged into higher payment bands.
Numerous approaches are possible when choosing how to reform council tax. The reform proposed in
this report is guided by the principle that a resident of an average-priced property should fall into tax
band D. This would mean that those whose properties are valued below the average house price would
pay relatively little in council tax, while occupiers of prime properties would contribute substantially
more to council tax revenue. Adding three additional bands to the council tax would make it more
progressive and thus distribute the tax burden in a fairer way.
© Centre for Economics and Business Research - Report Commissioned by Howard Cox for the FairHomeTax.UK Campaign