I made clear yesterday that increasing council tax is a wholly unacceptable way to solve the care crisis in the UK. It would be regressive, divisive and ineffective to try to solve that fundin g problem in this way.
But there is, nonetheless, one council tax solution that could help. It is simple. It could be done quickly. It would work. And it could be redistributive.
Right now every council divides properties into the following bands for council tax purposes:
House values were set on 1 April 1991 by the Valuation Office Agency. They explain more about how banding is set on their website.
Band D is an average property. In most cases a band H property pays twice a Band D property and a band A property pays 67% of a Band D property charge (but there are variations). And this is why the system is so regressive, as well as absurd for being based on outdated property values.
But this does indicate how extra revenue might be raised. It is wholly appropriate to now add up to five additional council tax bands to the above scale. Broadly speaking they would be £320,000 to £500,000, £500,000 to £750,000, £750,000 to £1 million, £1 million to to £2 million and £2 million and above. The charges would be, I suggest, 250%, 300%, 400%, 500% and 800% of the average band and still be generously low.
Valuation could be based on the likes of Zoopla: more property data is available now than ever before. And backdating is easy using known long term data. There will be some appeals, of course, but hardly insurmountable.
And the additional revenues should then be paid into a social care fund for redistribution according to need across the country as a whole, and not just for local use.
In one easy move we get a more progressive tax, a disincentive to property price speculation, and a pool of new funding. Of course there will be objections from those who will pay. I can live with that. This is the sort of tax reform we need right now.
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To quote Mike Skinner “Common sense, simple common sense”.
Of course this or something similar should happen and I say this a one who is fortunate enough to be adversely affected. It will however be a politically anathema to the Torys and there is no chance it will be implemented until we have a progressive government.
Richard.
I’m surprised you advocate an extension of an already acknowledged unfair and unwieldy system. The tax itself is unfair on fixed income households who by no fault of their own find their property values rising (the proverbial pensioner in a newly desirable area), while wealthier, lower value households pay less.
If a quick solution is required then scrapping it entirely and increasing general income tax would be just as easy. There wouldn’t be any need for a system that had to deal with appeals either. Given that council tax accounts for a small proportion of council spending, that a lot of councils struggle to actually collect arrears, plus that it is a tax in itself, why not do it all in one place?
Tony
Council tax and business rates will soon be all council spending – the rate support grant has gone
And I am being expedient in my suggestion: sometimes politics requires that
But I also do not agree with suggestions to remove land from the tax base
LVT is a long term solution: we need something now so I offer an answer for debate
Richard
Yes LVT (or as we call it, Annual Ground Rent) is the direct collection of economic rent as proposed in Scotland by:
1. we, the Scottish Land Revenue Group
2. Adam Smith (in ‘The Wealth of Nations’)
3. Professor Sir James Mirrllees (Holyrood Advisor)
4. Professor Joseph Stiglitz (Holyrood Advisor)
5. Profesor Roger Sandilands
6. Professor Mason Gaffney
7. Economist Fred Harrison
6. The multi-party Scottish Local Tax Commission
The return to this revenue stream and the simultaneous escape form taxes subject to deadweight losses, provides full funding for society’s needs, paid for in EXACT proportion to each citizen’s ability to pay, and at the same time releases enterprises to grow the economy as in Singapore, Hong Kong and Taiwan.
I am afraid your claim of spurious exactness somewhat undermines your credibility and that of the cause you promote
The proverbial pensioner in Chelsea (or wherever) will not see a council tax increase, unless the property is improved. He/she could, in any case, sell what has become a valuable asset, whereas the person in a low value house which has not increased substantially in value doesn’t have that option. If the person in a low value house has a high income, he/she is already (or should be) paying more in income tax.
The advantage with council tax is that physical properties stay onshore.
This is one of those quick throw away articles that undermines this blog. The increases outlined above fail so many tests as to be a disaster for any party who suggests them!
1) A fourfold increase without warning after people have moved into their family home, retirement property etc is utterly unfair!….The other big increases would also prove crippling for people who had no warning of such a change.
2) The increases take no consideration of the wealth of the occupier, they might own outright, have a giant mortgage or rent the property, yet your raw tax hits all.
3) What about the families with housing benefit or old pensioners in locations where prices have rocketed? Will you have to have complicated reductions or do you expect the party that suggest this to just ignore the sob stories in the press?
4) This will be seen as an outright attack on London and the South East in order to send money to the North and poorer regions. None of the extra money will be spent locally, it breaks the local taxation and local spending politics of late.
5) This will damage house prices and could cause problems for those with mortgages, perhaps even negative equity. Do you expect a political party to offer a policy with such an outcome and win elections?
In short no political party who wanted to win power would ever go with such a policy which means the whole idea is a flight of fantasy that wastes time and takes the left further away from any sensible policies that actually could be put in place…..
Richard
You are so predictable in your defence of wealth without consideration for others
I suggest some empathy for Christmas
Richard
But this policy takes no consideration of wealth……at all!
It will hit people renting housing as hard as those who own it outright.
If you are seeking to attack wealth you could come up with something better than this!
You really do have the most absurd understanding of wealth
The problem with introducing new bands would be that it would entail a valuation exercise which would almost certainly be very contentious as a national policy.
A simpler change would be to remove the strict effect of banding on the rates of CT payable. At present there is a fixed set of ratios determining how much CT goes up by as you go up the bands. If that were removed, it could then become a matter of local authority discretion how to distribute the incidence of CT across the bands. For example, an authority could decide to set the lower bands to nominal levels and increase the CT rate by a large amount for the top bands, which would make those living in very large houses pay a lot and those in the poorest accommodation pay little, as well as reducing the budgetary impact on the council of how much CT Benefit it needed to pay. Or another authority could see from CT default rates that it had a large number of well off working age people in Bands D & E and so put more of the work to pay CT on them while not raising the level of CT for the highest bands because locally they tended to be the homes of asset rich but cash poor pensioners. Or really any other combination which both reflected local demands and what local people were prepared to support in terms of taxation for the services they wanted.
Interesting point
Not as effective a top end
But interesting
Here we go again. In the late 19th governments pussy footed around local taxes until it was all too obvious that it was a total dangerous shambles. After that governments were consistently too late and too little in dealing with the rating system. Now we have the council tax, a bad compromise. Since the 1980’s property has become the Ark of the Covenant for governments and politicians. So do not expect anything that makes sense economically or administratively. And now we have a property crisis. May will not want to touch this and it is difficult to see anyone with the courage or support to do what is necessary.
Like others, I see issues with this and especially for those who have relatively low incomes but happen to live in areas that are/have become gentrified. I do however see general merit in adding bands at the top end and charging accordingly. But I think government would have to carefully consider the impact on those who get ‘caught’ through no other reason than historical occupancy.
I definitely see a case for properties valued above £1 million because even a cursory view would tell you that the chances of this hitting the less well off is highly limited.
I don’t see wholesale redistribution for care purposes working. From my time in the healthcare industry, rates and capping were always set locally making a difficult juggling act for any local authority. I’d be much more interested in learning how local authorities plan to safeguard the welfare of their most vulnerable citizens but that again raises questions of complexity.
Den
I have no issue with liabilities being rolled up, plus modest interest,mas a formal charge on a property yo be released on sale for those over 60
Richard
Council tax band values should have been revalued at max quinquenially from their 1991 base . But governments of all hues have in their cowardice kicked the can down the road to maintain popularity.
To the extent we now have an outdated scale which no politician dare touch for fear of committing suicide electorally..
Like the national debt of many countries the whole thing us irredeemable . Will never happen.
Maybe you don’t realise that redeeming national debt would be a disaster
The Scottish Land Revenue Group adopted the term AGR (Annual Ground Rent) to reflect Adam Smith’s ‘peculiar tax’ corresponding with LVT. See http://www.facebook.com/AGRforScotland or http://www.slrg.scot
We propose and wish to debate the collection of economic rent in place of deadweight loss-subject taxes in Scotland and the UK. The Commission on replacing Council Tax in Scotland recommended this but has so far been ignored. Holyrood’s own advisors Professors Stiglitz and Mirrllees also propose the same reform (the collection of revenue direct from economic rent). We therefor demand two new statistics be complied as expressed by Fred Harrison in his new book ‘Beyond Brexit: The Blueprint’:
To achieve a functionally fit form of governance, new statistics are required. To preside with wisdom over the laws of the land, Parliament needs regular re-assessments of the rents being generated in the UK. Net taxable income provides the best single numerical indicator of the health and wealth of communities at all levels — local, regional and national. HM Treasury and the statistical agencies have chosen not to compile data on economic rent. That omission needs to be corrected.
As part of the post-Brexit settlement, the people of Britain should assert their democratic right of access to two statistics.
Demand No. 1: Parliament will publish an annual assessment of economic rent generated from all sources in the United Kingdom.
Economic productivity, and policies that affect communities and their natural habitats, are optimised when government collects revenue directly from economic rent. Joseph Stiglitz calls this “the ‘Henry George’ theorem”, because “not only is the land tax non-distortionary, but also it is the ‘single tax’ required to finance the public good”.
Demand No. 2: Parliament will command an assessment of the deadweight losses inflicted on the United Kingdom by Acts of Parliament.
Without this information, the performance of Parliament cannot be objectively assessed, and elected representatives cannot be held accountable. Parliament must enact a law which orders that, on an annual basis — when the Budget is submitted to the House of Commons for scrutiny — the Chancellor of the Exchequer will publish revised statistics on the rents generated within the UK over the previous 12 months; and on the increase or decrease in the deadweight losses arising from proposed changes to tax rates. Armed with that information, people may choose to mandate the reconstruction of their public finances.
I very strongly suggest most rents cannot be reliably calculated
I nice point, but it all depends on your standard of measurement. What is your standard of measuremnt here? Assuming we are discussing ‘economic rents’, this is not exactly the same standard we would apply to physics. So that raises two questions:
What precisely is your standard of measurement?
What precisely do you mean by “reliable”?
I was responding to a suggestion that an exact answer is available
Defining rents in practice would be very difficult
Measuring much harder still
I am not suggesting I have the answers
I am saying with certainty that outcomes will not be exact
True, but with all due respect, not very illuminating. I think we can easily agree that ‘exactitude’ is beyond us in this area; of more interest is the proposition that the definition of “economic rent” is peculiarly difficult in the case of land (more difficult than any other variable in the disciplines that apply); at least that seemed to me implicit in singling out land. I am doubtful that such a proposition stands up (indeed I suspect land may prove easier to calculate, and with greater general utility), but I would genuinely be very interested to consider your substantive counter argument.
The claim referred to all rents not just land
You are distorting my words and the argument
I do not wish to exhaust the issue, but neither my intention, nor I believe the substance of my argument was “distortion”. I am disappointed that you chose to draw that conclusion. You chose the words “most rents”; so presumably:
a) some rents can be reliably calculated (according to some standard)
b) therfeore it is reasonable to ask, which rents?
c) What makes them distinctly different from other rents?
I believe land at least may be measured “reliably” (relative to an appropriate standard applicable to this field), but since I do not know what rents you have in mind, or the standrad you apply, I think my questions are reasonable. You may not; in which case there really is no more to be said. I would then leave it with the readers (if there are any left) to judge.
Respectfully, it’s clear you think you know the answers to these questions
And of course land may be measured, at least partially
But that is a long way from all rents
And as I said before, I do not have time to discuss the rest: I have a day job to do and I will decide how I use the time left over, not you
Australia reassesses land values every 2 years.
The validity and logic of these demands remain. Whatever the value of these rents, they are the property of all citizens. It therefor behoves a responsible government to ascertain their value or to die in the attempt. Even an estimate of the total rents value will immediately reveal – by its difference from the current government budget – the sums currently privatised, i.e. expropriated from us all by rent-seekers. Here are revealed the missing sums that must be collected to fund public services and end the crises afflicting such areas as social care.
How is property owned by all citizens?
And how do they get their share?
And please don’t say by LVT because that’s a tax
Why bother with Council Tax, a botched scheme to replace the Poll Tax when there were riots on the streets? Why not go back to the old domestic rating system if you can’t bear to think about LVT?
The non-means tested discounts could be abolished: e.g. the discount for single occupancy which dis-incentivises living cooperatively and the discount for being over 65 which is blatant age discrimination in favour of the only group that have seen real incomes rise significantly since 2008.
Naturally the baseline for the means-tested council tax support schemes would have to be raised a little to compensate.
Making landlords liable for council tax would simplify collection – obviously they would pass it on to tenants in higher rents but it would mean less administration for the council in setting up accounts, billing and issuing summonses for those that need chasing up.
@ Richard (not Murphy)
The poorest pensioners don’t pay *any* council tax, even if they live in a mansion in the most expensive part of the country. Families in receipt of housing benefit only pay a percentage of council tax. Therefore, adding extra bands wouldn’t affect pensioners at all and almost certainly won’t affect working age families in receipt of housing benefit, whereas adding a percentage across the board (as suggested by the government) would.
Not only that, but people in more expensive areas don’t necessarily pay more council tax than those living in poorer areas. Council tax doesn’t increase if property prices in an area rocket. The system doesn’t work like that.
1. Council tax is wrong and tweeking it won’t make it right. All local taxes are inherently regressive – the poorest localities have the least revenue or highest tax rates, the richest localities have the opposite. Taxes should be collected nationally and then the funds needed to meet local government costs should be distributed to the localities in accordance with a formula that inversely correlates to local per capita GDP.
2. Having separate budgets for health and social care just incentivises buck passing that leads to bed-blocking and all manner of other dysfunctional behaviour. The two services and budgets should be merged and managed on a joined-up basis.
So we need a new devolved tax
I live in Lambeth where this government has penalised a Labour council by slashing our budget by 56% causing untold misery on our services in an borough that has a lot of poverty, homelessness & a housing crisis. Cameron’s Oxford borough was cut by 18%. This government has been exposed for the failure of their austerity policies but as the media is controlled by the right wing, no-one seems to be holding them to account. They now have Brexit to blame for their failures. There are no houses in Lambeth that fall into band H now as the property boom has exploded and all houses are above £320K. You might get a 2 bedroom flat for that price. Why should people be driven out of their homes by further stress of a rise in council tax? If someone wants to buy a property as a second home, or a rental property in this area, then fine, add a 250% tax as it’s an investment not a necessity but the home you live in is. If this is enforced, I will be forced to leave my home as our income due to austerity has been slashed & our general bills have raised out of all proportion without an added £4K in council tax per annum. Do you think this is fair Richard?
Remember £320k is the 1991 value
Not the current value
And I am more than willing to see changes in the proposal – which was made simply to show there are other solutions – but it is still clear that higher value properties (maybe by proportion) should pay more
If an extra criteria is required I am happy with it
For a full explanation as to why economic rent is ‘public value’ [Marshall] see http://www.sharetherents.org
Suffice it to say in brief that economic rent comes entirely from services provided free by nature or from the returns on everyone’s invested taxes. These should, by all logic and ethical deduction, be collected rather than given away to land owners as free capital gains to fuel speculative property cycle booms and busts.
But you have correctly identified why we renamed LVT Annual Ground Rent. It is NOT a tax. It is the collection of rent generated from nature and the efforts of society and therefor no raid on anyone’s resources acquired by the investment of any capital.
…or labour.
No, it’s tax because it performs all the functions of tax
Read the Joy of Tax to understand what they are
The combined efforts of society generate economic rent that is therefor public value as argued by Alfred Marshall and others. The term you use to describe its collection as revenue is not material to the essential identity of that wealth as the missing public resources whose absence (because of historic and contemporary rent-seeking) impoverishes all public services today. I hope the followers of your blog will accept that even if you cannot bring yourself to do so.
This blog and its commentators frequently argue we live in a rentier economy: you seem to have missed that
But to correct that does not require LVT
And does not require that rents be precisely identified
And that was my point
Your first point is accepted, as I am a new visitor to your blog.
“create more higher rate bands”
Or, just go to a plain simple percentage. In effect, have bands going all the way up to infinity. National income tax isn’t banded, why should local property tax be banded?