Lib Dem leader outlines plan to tackle unfair council tax during visit to Essex

The Liberal Democrat leader said redistributing government subsidies more effectively rather than reforming council tax was the best way to overcome the unfair nature of council tax. He was speaking during a campaign visit to Chelmsford, where the Liberal Democrats are in a tight race to overturn the Conservatives’ majority of more than 17,500 votes.

Chelmsford Council has said that without more funding from central government, the current 24/25 years will be the last time it will be able to balance its finances without making significant changes to its services.

Ed Davey said the priority should be to review how grants are awarded and that “the best way to help taxpayers is to ensure that central government provides fair grants to local authorities”.

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However, he said that while he acknowledged some less wealthy areas were being “mistreated”, equalisation should be done through grants rather than an overhaul of the council tax system.

His position is at odds with the IFS which believes that reform of the council tax is urgently needed. The house prices on which it is based have not changed since 1991 despite 30 years of significant changes in the property market and these changes have made the tax regressive.

The IFS has illustrated the main problems with our current council tax system: it is outdated and very regressive in relation to property value. Average property values ​​have increased very differently in different parts of England since properties were assessed for council tax – around twice as much in London as in the North East of England.

This means that council tax represents a much higher proportion of the land value for low value properties than for high value properties. In Essex, this means residents in Jaywick, one of the most deprived areas in the country, pay at least three times more as a proportion of the value of their property in council tax than wealthy Hutton Mount in Brentwood, where house prices exceed £1.3 million.

The IFS adds that assessment alone would have little effect on the progressivity of property tax across the income distribution. Making property tax proportional to property value would on average benefit low- and middle-income households, and be detrimental to high-income households.

In England, council tax bands are still based on property values ​​in April 1991, almost 30 years ago. Since then, the relative prices of different properties have changed considerably: for example, official estimates suggest that the average price in London is now more than six times what it was in 1995, compared with just three times in the North East.

Additionally, the most valuable properties in 1991 (Band H) attract only three times as much tax as the least valuable properties (Band A), although they were worth at least eight times more in 1991 and typically even more today. today, since prices have increased the most in areas where they were already highest.

They also argue that the single person discount – offering 25% off council tax – actually subsidizes single-adult households and penalizes households with more than one adult who live in larger, more expensive properties. expensive.

They say that leaves a tax system that makes it relatively cheaper for people to live in homes too big for them and more expensive for those who need a larger home.

They say reforming this reduction could reduce problems of housing under-occupancy and overcrowding.

Ed Davey said: “The IFS seems to think it’s easy to do. It’s not easy to do. Anyone who has looked at local government tax reform knows how tricky it is.
“But where it is absolutely fair, there are areas that are poorly handled. But I would come back to the subsidy system.

“One of the aims of the grant scheme for local authorities is to ensure that worse-off areas get a little more help – this is the equalization part of the government grant and it has been undermined by conservatives.

“There is no doubt that people in less well-off areas are worse off, but I would argue that the quickest way to address this is through the subsidy system. »