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Unwelcome in the hillside, by David Meilton

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03 June 2005

Welsh property has been revalued and rebanded, so council tax is up. David Meilton looks at the implications for the rest of Britain

It's a rare revolution that starts in Wales, but here's one that could have profound implications for the rest of Britain.

Perhaps not since Owain Glyndwr stormed across the Welsh Marches in 1400 to challenge English rule have events in Wales threatened such an upheaval.

It is, admittedly, a long way from the brave Owain to the 2005 council tax rebanding revolution, but this one might just set the government in England rocking too.

The two-year process of revaluing every property in Wales began, with very little fanfare, in 2003, masterminded by the Valuation Office Agency – a division of the Inland Revenue army – and with the active participation of the Welsh Local Government Association.

Two years on, on April 1 this year, all property owners in the principality found themselves recategorised in an updated set of nine council tax bands, rather than the previous eight.

Almost exactly a third of them discovered that their property had been ratcheted up by at least one band, according to the revised valuations, and were consequently facing steep rises in council tax.

And then the screaming started…

WLGA leader Alex Aldridge said: 'We accept that it is right that the council tax people pay reflects a more up-to-date valuation of their homes. But we are very aware of the impact on a significant number of homes which have seen exceptional increases in value in recent years.'

On the same day, a similar process began in England. This revaluation should be complete in time for the new categories to come into effect on April 1, 2007. Government ministers are already dreading that day.

In Scotland, by contrast, joy was (relatively) unconfined when First Minister Jack McConnell announced on May 13 that revaluation would not take place – at least until the Holyrood elections in 2007.

He's not daft. The rumbling had already begun north of the border. Those active in Scottish politics have not forgotten that previous revaluations, especially the one held under the old rating system in the mid-1980s, have been intensely controversial. So if the Scots are running scared of revaluation and the English are parking it for a year or two pending Sir Michael Lyons' review of local government finance, what of Wales, where the revolution has actually happened?

The task facing the VOA was immense. The agency takes account of the size, age and character of the property, as well as the area it is in, and uses sales price data from around the valuation date to arrive at the correct band for the property.

The last full-scale revaluation was carried out in the wake of the poll tax revolt and the inception of the council tax. Since then property prices have rocketed, especially in the more desirable areas, and the population structure of Wales has changed markedly, as pits and old industries have wasted away, replaced by a more service-based economy.

The process, begun in 1991, was implemented in April 1993. Thus the tax bandings were based on 1991 valuations, as they still are in England and Scotland.

After long consideration, it was concluded that the existing eight-band system was too restrictive to cope with the broader range of property values, and a ninth band, for properties valued at more than £424,000, was brought in (see table).

The end result was that 58% of properties remained in the same band, just over 33% went up by at least one band, and only about 8% – including 100,000 properties in the Valleys – went down.

But, inevitably, there were spectacular valuation changes in some of the more prosperous areas. In Cardiff, 64% of properties were uprated; only 2% went down. Wrexham (52% up), the Vale of Glamorgan (44% up) and rural Monmouthshire (41% up) were among the hardest hit. Plaid Cymru Welsh Assembly member for Caernarfon Alun Ffred Jones claims to have two constituents whose properties have been moved from Band B to Band F, taking their annual council tax bill from about £650 to £1,200.

Most rises, though, are smaller, according to Dave Brown, the WLGA's finance director. 'If you're moving from a band D to a band E, then typically you'd be looking at an extra £200 a year,' he says. 'The percentage increase is around 15%.'

Local Government and Finance Minister Sue Essex admitted under pressure that revaluation had pushed up the total council tax increase in Wales for 2005/06 to 9.1%.

Generally, the reaction – at least so far – has been muted. The Welsh Assembly government took some of the sting out of the indignation by stipulating that no property should go up by more than one band a year. 'The transitional relief scheme is a welcome move to alleviate the worst impacts,' said WLGA leader Alex Aldridge.

But this still means that some homeowners will find themselves leaping up the ladder by one step in each of several years to come.

A one-off £27m grant to the Welsh Assembly from Chancellor Gordon Brown last December, in part directed towards limiting council tax rises, also helped. Essex said: 'This is a good deal for local government which will allow the well-managed councils of Wales to develop their services.'

Nevertheless, the founder of anti-council tax campaign group IsItFair, Christine Melsom, insists: 'There is a lot of anger.' At the same time, though, with a hint of resignation, she admits: 'The difficulty is that only 33% have gone up, so it's only a minority who have been adversely affected.'

A second reason is that there is no real political voice of protest. Melsom says: 'Neither the Conservative Party nor Labour wants to get rid of a property-based tax. It's their bread and butter. But it's not going to produce a fair result, because it's people who pay taxes, not properties.'

The Liberal Democrats might be continuing to push for a switch to local income tax, but, as the Labour majority in Wales gleefully points out, brandishing allegations of hypocrisy, LibDem AMs went along with the revaluation process.

There has been some Tory dissent in the most affected areas. Monmouthshire Conservative AM David Davies says that in his area almost 2,000 houses have moved up two bands and a further 500 by three or more. The Assembly government's claim that there would be as many winners as losers in the process is, he says, 'clearly not true'.

He adds: 'Pensioners who have spent years working to pay off a mortgage will be particularly badly hit, as they have no means of paying the increases.'

Melsom has not given up hope of further protests. 'Anybody who has saved for their retirement is penalised,' she says. 'I think you'll find a lot of people in Wales won't pay their final instalment.'

But in Wales, it seems, it is more or less a done deal. Now the focus moves to England. The VOA will spend about £110m revaluing the 21.5 million homes – and appeals could double that cost.

Perhaps surprisingly, the revaluation issue created few waves in the recent general election campaign. But it was in no-one's interest to stir the council tax pot.

The issue made a brief splash when a junior transport minister, Charlotte Atkins, was unwise enough to suggest in a BBC radio interview that Labour planned to scrap council tax 'because it is regressive'.

She was quickly slapped down by then local government minister Nick Raynsford. She publicly apologised and is no longer a minister.

The Conservatives claimed she had 'lifted the lid' on plans for a new ten-band tax which, they said, could cost those in the most expensive houses as much as £6,000 a year. They withdrew their backing for revaluation in England, claiming it was a £2bn 'stealth tax'. They were duly denounced for electoral opportunism.

But a survey by the Royal Institution of Chartered Surveyors in April backed the Tory view. It said councils in England would collect an extra £2.04bn in tax annually. RICS's chief economist, David Stubbs, said: 'If the Welsh model is adopted, we will see a disproportionate number of houses moving up into higher bands in southern regions where house prices have risen above the national average.'

Raynsford, who insisted that the eventual revaluation in England would be 'revenue neutral', could and did fall back on the latest of a succession of local government finance reviews, the one being carried out by Sir Michael Lyons.

Once due to report this summer, it is now slipping gently away, to no-one's surprise, towards the turn of the year and beyond.

Even then, those in the front line are sanguine about the likely results. We have, after all, had the Layfield review in 1976, and the Balance of Funding review in 2004, and the earth has not moved.

Lyons himself turned up in Wales last month to tell the Welsh Assembly: 'The remit is that council tax should remain, but be made fairer. I retain all options, both upper bands and lower bands.'

He stressed: 'You can't extrapolate the Welsh experience to England,' a line also employed by Raynsford before the election, claiming that the original Welsh bands were different because of lower property prices.

A review of local government finance is also under way in Scotland, headed by Sir Peter Burt, the chair of ITV and the former Bank of Scotland chief executive.

It gave McConnell the perfect excuse for temporisation. 'There is no point [in having a revaluation] until we know the outcome of the independent review,'

he told Scottish National Party deputy leader Nicola Sturgeon, who had accused Labour of already having decided on revaluation.

The LibDems, McConnell's coalition partners at Holyrood, extracted a promise to implement proportional representation in local government elections last time. Now they are nurturing hopes that the price of a renewed pact after 2007 could be a switch from council tax to a local income tax.

But it is doubtful, even in these devolved times, that Westminster would be prepared to countenance such a radical departure from the UK norm.

The new ministerial team of David Miliband and Phil Woolas has so far steered clear of the issue. The Office of the Deputy Prime Minister confines itself, for the moment, to warding off allegations that council tax will rise.

'Council tax revaluation is not about increasing overall tax revenue, but about achieving a fairer distribution,' it says. 'We want to ensure that we have all the tools in place to make the revaluation as fair as possible. Powers to change banding structures and ratio will ensure that we are able to do this.

'It is far too early to say what the effect will be on individual council taxpayers. This will depend on actual property values nearer the time and decisions yet to be taken on council tax banding and ratios.'

Lyons might yet emerge to save their bacon, but few are banking on it. The voluble middle-class property-owning democracy in the shires and commuter belts might be less easily assuaged than are the Welsh.

Another huge upheaval in the always controversial council tax is the sort of nettle no new government will want to grasp, especially when it has a vulnerable parliamentary majority.

PFjun2005

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