Council Tax has long been criticised as one of the UK’s most outdated and uneven tax systems, and according to SPF Private Finance CEO Mark Harris, the Chancellor’s decision to sidestep meaningful reform in the latest Budget could prove a costly mistake. With property-value bands still based on 1993 valuations and local authorities increasingly reliant on Council Tax to fund essential services, experts argue that the system is no longer fit for purpose.
Council Tax property-based bands remain largely unchanged since their introduction in 1993, creating what many describe as an outdated system based on property values from three decades ago.
The government could have viewed Council Tax reform as an opportunity to address what many consider a regressive tax structure, whilst also boosting available finances. Properties in Band A currently pay around a third of what those in Band H pay, despite the latter being worth up to ten times more.
Reform could’ve taken various forms, from a complete revaluation of properties to the addition of new bands at the top end, or even a shift toward a proportional property tax based on current values.
However, the only change was to simply place a tax on homes worth over £2 million. This creates more questions than answers though, as homeowners may be able to circumvent the tax by challenging the value of their home.
This also comes at a time when local authorities have seen their central government funding cut dramatically over the past decade, and Council Tax now funds a larger proportion of local services, putting pressure on councils to increase rates annually.
The last major attempt at Council Tax reform also occurred under the Labour government in 2007, with plans for a revaluation in England previously abandoned due to fears of political backlash from homeowners facing higher bills.
Mark Harris, CEO at SPF Private Finance, has revealed exactly what the changes could mean:
“Although the outdated Council Tax system is crying out to be fundamentally changed, unfortunately, the Government doesn’t have the appetite for the required root-and-branch reform. There is a big black hole in the nation’s finances, and the Chancellor is hoping that by targeting those with higher-value homes via a council tax surcharge, she will go some way to plugging it.”
Although implementation of the changes could well be delayed by homeowners challenging their property valuations, it may be one of the easiest ways of raising extra money for the Treasury. However, will it be anywhere near enough? And how fair will it be on those who may have high-value homes but don’t have the necessary income to cover the higher charge – will they be forced to sell up?”
Any reform would likely include a lengthy consultation period before implementation, meaning changes will not take effect immediately. But, even with consultation periods and phased implementation, homeowners in higher-value properties should prepare for meaningful changes ahead.”
