Wednesday, March 14, 2007 :
Council Tax
I have written about this before, but it still seems to me that the stories about Council Tax revaluations are based upon flawed logic. It is often quoted that since Council tax bands were set in 1991, the average house price has increased threefold. The implication appears to be that everyone is going to face an enormous Council Tax increase if the bands are reassessed on current prices. You’re three times richer than you were in 1991, so you should pay three times the tax, right? And what about the pensioners? It’s not their fault that their two–bedroom London maisonette, where they’ve lived since 1946, is now worth £2,400,000. How are they going to pay the tax out of £85 a week?
It’s nonsense. Council Tax is about dividing the costs of local services fairly among local residents. The Government has decided that ‘fairness’ can be achieved by making contribution to services proportional to the value of property inhabited. It’s not a capital gains tax, based upon absolute increases in value. Therefore, it doesn’t actually matter much when the valuations were conducted, unless for some reason since the valuation, the prices of some residents’ properties have increased more than those of other residents. Pensioners only get screwed on revaluation if since 1991, their two–bedroom London maisonette has soared in value, while the value of the maisonette round the corner has remained static. If, as is likely, prices within a given area have more or less risen uniformly across the board, the pensioners will be in exactly the same position when bands are set on a revaluation as they were in 1991.
A related article talks about proposals to bring in a new band for houses of £1m plus, which will incur double the tax. This is hard to get particularly excited about either, but I accept that it may be somewhat more prone to producing unfairness. This is because £1m appears to be an arbitrary cut–off, leading to a stark increase. If the situation really is that in some Councils’ territories, historic house price inflation means that many houses are now above that limit, while many remain just below, it could look to be unfair. Greater fairness is obviously more likely to be achieved by a larger number of smaller incremental increases. But is it really the position that there are many income–poor people, particularly pensioners, living in £1m+ houses? I somehow doubt it. And if so, one reaction might be to say “lucky bastards; why don’t you release some equity or move to a cheaper pad, if the Council Tax payments really are unduly burdensome”.
Labels: economics, UK politics
I agree that there might be a finite amount of money required by the council and shared out between the residents according to these bands and that therefore there should be as many winners as losers. The reality is that, even if the council were to resist the temptation to use this exercise to raise slightly more funding, there will be more people who perceive themselves as losers than there are winners.
This is because those who stay on the same band will actually pay proportionately less, but they will not see it that way - they will see themselves as paying their dues - and if that is less than last year, that is only fair because the council wastes the money anyway. A third of people will perceive themselves as losing out (i.e. paying more despite not having moved) - which gives rise to a general resentment. I suspect the 8% keep very quiet as nobody wants to proclaim that they live in a shithouse.
Make sense? (It does in my head, like most things).
Alright, revaluation could be said to be seeking to cloak a tax rise that people wouldn't swallow if it were just presented as a straight rise. But I don't buy that either. If people are going to revolt on a rise, they will do so whether it's based upon "revaluation" or just on "we need some more money, sorry".
It's just the rises that are pissing people off. Revaluation, house price inflation and pensioners are all part of the same red herring.
Clearly local government is underfunded and not poorly administrated. For example, despite settling my final council tax with Islington and receiving assurances that they'd cancelled my direct debit this month they swiped the 90 or so quid as usual.
Fortunately as a proactive citizen I was able to take action and at 7am on Sunday morning I deposited £60 notes in the stealth tax collection bin just outside Euston station. Took me a couple of runs to get the lights right and the very early start helped enabling me to squeeze out a 37mph.
With Comic Relief dominating the charity giving of the weekend it felt good to be able to contribute back to my local community.
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