Lack of council tax revaluation ‘absurd’, says IFS head

13 May 14
The coalition government has been told by the Institute for Fiscal Studies that its failure to carry out a revaluation of property values for the purposes of levying council tax is ‘increasingly absurd’

By Richard Johnstone | 13 May 2014

The coalition government has been told by the Institute for Fiscal Studies that its failure to carry out a revaluation of property values for the purposes of levying council tax is ‘increasingly absurd’.

In a lecture on the tax system, IFS director Paul Johnson said the coalition had ‘followed in the pusillanimous steps of its predecessors in failing to carry out any revaluation of properties for council tax in England’. As a result, the property tax would soon be based on relative property values that are a quarter of a century out of date.

Delivering the annual Chartered Tax Adviser address today, Johnson also said the coalition had created uncertainty and added complexity to the tax system since coming to power in 2010.

It had pursued two major tax policies since coming to power – a series of increases in the income tax personal allowance to £10,500 and a series of cuts in the headline rate of corporation tax to 20%. Both of these are on track to be met at a cost of around £20bn a year, but Johnson said the consistency in their implementation was in contrast to the complex changes elsewhere.

Complications to the taxation regime created by the government include the failure to increase the threshold for paying National Insurance Contributions at the same time as increasing the income tax personal allowance.

‘It is hard to think of a rationale, and none has been offered, for continuing to increase the latter while not increasing the former,’ he added. 

‘More than one million low paid workers now pay NICs but not income tax.’

In addition, huge policy uncertainty has been introduced through changes that have been made at least once a year to the regime of business rates, corporation tax allowances and carbon taxes, he added.

The current administration had also accelerated the increase in the number of people who pay the 40p tax rate to increase. 

This has ‘fundamentally altered’ the nature of our system of income tax, Johnson said.

‘Numbers have risen from less than 2 million in 1990 to nearly 4 million in 2007 and well over 5 million by 2015. 

‘The problem is not necessarily so much the fact of the change – there is a case for, and a case against, such a system – but the fact that this fundamental change to our tax system, which appears to have the support of the three main political parties, has never been announced or properly debated.’

Johnson insisted these failings in the tax system all had an impact on the economy. 

‘Complexity, uncertainty and inefficiency in a tax system which takes £4 in every £10 generated in the economy costs a huge amount in lower welfare, less economic output and straightforward inequity. 

‘Even if we can’t have perfection something close to coherence and consistency would be nice. In the words of former US Treasury Secretary William Simon we should have a tax system which looks “like someone designed it on purpose”. That feels like a low benchmark, but it is one we are a long way from meeting.’