Council tax doubles...compared to what?

Jock — Sat, 23 Jun 2007 10:01:34 +0000

There are a few stories doing the rounds in the media today about a Halifax report that the average council tax has doubled in the past ten years. I don't know why this is new news but there we go - a slow news day perhaps. Now, regular readers will know that I too loathe the council tax. It is massively regressive, with people in lower value properties paying a far higher proportion of their property's value in tax than those in higher value properties. But, what are people comparing it with? The BBC choses to compare the rise in tax with inflation and average earnings over the past decade:

BBC NEWS | UK | Council tax 'doubles in 10 years':

The average council tax bill has almost doubled in the past decade, says a report by the Halifax building society.

The rise, from more £550 to almost £1,100, is three times higher than the rate of inflation and twice the increase in average earnings.

The tax is now 91% higher than when Tony Blair first took office.

The Local Government Association, which represents councils in England and Wales, has dismissed the report as a rehash of old information.

In comparison, average earnings have increased by 51% over the past 10 years and retail price inflation has risen by 31%.

But council tax, for all its imperfections, is a property tax. But because it is based on what councils need to raise, however, rather than real property values (partly because the valuation is still 15 years old) it is probably mostly coincidental that it has kept pace more with the massive rise in property values than these other indicators. But that's how a property tax ought to work. The beneficial owners of that property have seen their net worth grow massively over the same period. In some places often gaining more on paper in the value of their properties per year than they make in their day jobs.

Of course this is another failing of the tax...it falls not on the beneficial owners but on the occupiers. If, like many, you cannot afford to own now, you are hit doubly hard. But if we were to switch the tax base to incomes, say, as the Lib Dems and Scottish Nationalists want to do, we will lift the lid on what little upside protection our property taxes provide - we could expect house prices to rise by an average of say £20,000 in one hit. And because the tax incidence of a local income tax would dislocate it from the property market, it is likely that the property market would be able to pretty well disregard the local income tax so people would be expected to pay the price for removing a property tax as well as their local income taxes just to be able to afford a home.

Of course, the benefit for the Halifax in ditching this regressive tax is that people will have to borrow even more from them to buy their house. Thus the rise in location values caused by people's genuine need for accommodation fees through not to the public exchequer but to the bankers. One day, they really will rule the world, unless we take action now!

Technorati Tags: affordable housing, land value tax, property tax

Jock's Place - Council tax doubles...compared to what? - Comments

Council tax doubles...compared to what?