Rachel Reeves, the Shadow Chancellor, is under immense pressure to go big and be bold. The council tax system hasn’t been revalued since its original 1991 valuations. Now, stakeholders across the public, private, and nonprofit sectors are calling for a fundamental reassessment of residential properties. They focus on the importance of a system that is more current and fairer.
The Treasury is working furiously behind the scenes on plans to change how homes are valued. They’re concentrating on homes in the 3 most expensive council tax bands – F-G-H. This flagship policy is designed to plug the widening hole in the regressive council tax system, ensuring it is fairer in nature. Households living in the least expensive properties are now paying a higher proportion of their income in council tax. In the meantime, owners of marginally less valuable homes are increasingly shouldering that burden.
Reeves’ plan, as currently proposed, sets a target for new plans to be introduced within a few years, giving householders time to adjust to the new standards. It’s a relatively small new property charge, expected to bring in less than £1 billion per year. The details about what this property charge threshold will be are still up in the air. Early estimates suggest an annual flat-rate levy of £2,000–£3,000. This new levy will only affect those properties valued over a yet unknown threshold probably set between £1 million and £2 million.
Helen Miller, director of the Institute for Fiscal Studies (IFS), expressed her opinion on the issue.
“Once you’ve done that much revaluation, couldn’t you just revalue the whole stock, and then actually update council tax? If not now, when? How many more decades do we have to be saying we’re basing council tax on 1991 valuations?” – Helen Miller
Miller warned that a partial revaluation would add further complexity to an already convoluted system, exacerbating questions over its long-term effectiveness.
Adam Corlett, a principal economist at the Resolution Foundation, generally welcomed the government’s approach, taking a somewhat more positive line. He praised the proposed reforms, arguing that they would create more fairness in an unfair system.
Although there’s widespread support for reforming the system, not all Labour MPs are convinced of the impact these changes may have on their constituents. The worry is based mostly on the volume of “asset-rich, cash-poor” households. Working and middle-class families would bear the brunt of the impact from any new model of taxation.
The council tax system as it exists today has been rightly lampooned for its inability to change since the 1990s. It’s a common assertion from critics that homeowners occupying high-valued residences are not contributing equally in taxes relative to their income. Its status quo extends an inequitable and outdated system of taxation.
Hannah Peaker also stressed the importance of a property tax structure fundamentally rethought.
“The government should absolutely be rethinking property tax, and not least because this is one of the most economically efficient ways to raise funds for our starved public services.” – Hannah Peaker
That imperative for reform has occurred parallel to an even larger debate about the need to fund public services and fiscal responsibility. Local councils are under enormous pressure to find resources. As councils face mounting pressures, advocates for change are convinced that reforming council tax would provide a welcome cash injection.