20 June 2024

The next government must be bold in confronting council tax


One of the great ‘what ifs’ of Rishi Sunak’s premiership is what he might have done, given his apparently irremediable polling situation, with an overall majority and two years in charge of the country.

Freedom is, as the song has it, just another word for nothing left to lose. If you know you’re going to lose office, that can actually be quite liberating, an opportunity either to leave traps for your incoming opponents (as Gordon Brown did with the 50p rate and the Equality Act) or even to effect controversial but much-needed changes.

Yet even were he a completely different man, and hell-bent on a kamikaze bid at a worthwhile legacy, the Prime Minister would surely not have dared to grasp the third rail that is council tax reform. 

And it is testament to how large Theresa May’s example from 2017 looms in the minds of Labour strategists that even now, 20 points ahead with barely two weeks to go against an opponent whose main press story is whether or not senior Tories corruptly gambled on the election date, Sir Keir Starmer and his team are being very shy about any plans to overhaul it themselves.

Little wonder. According to new polling by Lord Ashcroft, more than 50% of voters are opposed to any changes in council tax bands, believing it would simply be ‘just an excuse to charge more’; only three in ten said revaluation would make the tax fairer.

On the face of it, the public are wrong – just as they were wrong to decry May’s attempts to get older people with a certain amount of asset wealth to contribute a capped amount towards the cost of their own social care (which Labour very effectively, if short-sightedly, branded the ‘dementia tax’).

Out of all the dysfunctional parts of the British state, council tax is surely one that gets closest to late-Qing levels of absurdity. The level is pegged to house prices in 1991, the year before council tax was introduced to replace Margaret Thatcher’s grossly-mishandled Community Charge, and has never been re-assessed.

Not only does this mean that older housing stock is taxed at rates which almost entirely predate the onset of the acute housing crisis in the late 1990s, but new-build properties have to be taxed based on a guesstimate of what they might have been worth decades before they were actually built.

This is obviously unjust. As the United Kingdom has endured almost two decades of zero growth in either GDP per capita or real wages, successive governments have had to keep ramping up taxes to keep up with public spending commitments. Yet the burden of this has fallen on incomes and investment, not the huge boom in nominal property wealth.

It also means that existing homeowners, especially those who have paid off their mortgage, are not exposed to the housing crisis. A sensitive council tax rate would have meant people comfortably on the ladder would start feeling the pain if a shortage of housing pushed up prices in their area. 

Instead, they have been insulated completely from all the ill-effects, free to veto local development while banking the profits of runaway house prices (not to mention, quietly endorsing governments that choose mass immigration to generate taxes, the burden of which falls mostly on the rental sector).

So, a big-bang overhaul of council tax bands would be just, right? Well, it’s actually a little more complicated than that.

The problem is that council tax does not distinguish between someone who owns their home outright, and someone who is still paying their mortgage. A whole generation of people have been forced to leverage themselves to the hilt in order to get on the ladder, due to property prices which are not their fault. 

It isn’t obviously fair to whack a big tax increase on people for an asset that is mostly owned by their bank, and at the same rate as those who have paid off their house and benefited from years or decades of value uplift. It also hugely increases the number of households exposed to any change, and likely explains the public hostility Lord Ashcroft reported.

So what to do? As a conservative, I’m not keen on the principle of heavy property taxation. But in Britain’s present circumstances, it looks like one of the only ways to break the abysmal misalignment of incentives that sees councils and local residents mobilise tirelessly against development – a coalition which central government could overcome, but has consistently refused to.

An ideal solution might be to levy council tax based on the owner’s actual equity in the property, but that would be a total nightmare to implement.

Were Starmer feeling bold, he might consider my proposal for a ‘Boomer Bedroom Tax’: local referendums offering residents a straight choice between the current de minimis tax regime for their property wealth and their veto power over new development.  

A more subtle strategy might be to institute a regular revaluation for council tax but at the same time slash the actual rate, so that bills remained initially much the same as now and then crept upward over time. That wouldn’t capture all the granular changes in property values that overhauling bands would, but would at least break the deadlock and get our one sensible property tax (Stamp Duty is awful) moving in the right direction.

Alas, this is not a Labour Party that yet looks like it will be making bold decisions on any front. Perhaps that will change a year or two in, if the majority is as historic as it looks set to be. But based on its manifesto, and my conversations with people in the housing space, we are set for five more wasted years – at least.

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Henry Hill is Deputy Editor of ConservativeHome.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.