Government urged to let councils set tax rates on homes

15 May 15

The new Conservative government has today been urged to implement wholesale reform to local taxation by abolishing council tax bands and replacing them with a flat rate levy on property values, set by individual local authorities.

In a report published today, think-thank CentreForum argued that reform was needed to address the issue of council tax values still being based on 1991 values, and to address calls for residents in higher-value properties to pay more.

Both Labour and the Liberal Democrats were promising to bring in a mansion tax on properties worth more than £2m if they won the general election, which the think-tanks said was bad policy disguised as good politics’.

Today’s Moving beyond Mansion Tax report said that rather than adding the proposed mansion tax, the new government should instead reform council tax to make it a flat rate tax on the value of domestic properties.

It argued that revamping council tax would strengthen the links between taxpayers and local services and be a fairer way of rebalancing UK property taxation than an annual tax on homes worth £2m.

Under the plan, local authorities could set the percentage rate of this property tax, and would retain all revenue raised on homes valued at £2m or below to pay for local services. Tax raised from properties worth more than £2m should be pooled by all local authorities and redistributed among them to replace council tax support.

Tom Papworth, associate director for economic policy at CentreForum and one of the report’s authors, said a mansion tax was ‘a flawed idea that in no way guaranteed that the extra tax burden fell on those with the broadest shoulders’.

He added: ‘Rather than creating a new, complex and unfair tax, politicians should look to reform our existing property tax system. This should include a long overdue examination of taxing economic rent on land, and immediate reform to council tax to make it a fair and efficient means of raising money for local government.’

The report further suggested that government should create a Royal Commission to consider the appropriate balance of taxes on property and the issue of unearned economic rents on land.

Responding to the report, a spokesman for the Department for Communities and Local Government said the government would work with town halls to keep council tax down for residents, and would continue to place a cap on increases that can be implemented without a local referendum.

‘Over the past five years, average council tax bills in England have fallen by 11% in real terms, giving families greater financial security and this government will seek to continue this trend by working with councillors to deliver high quality and value for money services for the people they serve.’

 

  • Judith Ugwumadu

    Judith Ugwumadu joined Public Finance International and Public Finance online as a reporter after stints at Financial Adviser, Global Security Finance and The Sunday Express. Currently, she writes about public finance, public services and economics.

    Follow her on @JudithUgwumadu_

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