How council tax reform could affect how much you pay – by area

Andy Burnham’s Government is considering options to reform council tax, as the new Prime Minister comes under pressure to bring in a fairer system. Treasury officials have looked at ways to overhaul property taxes so they can brief Burnham’s No 10 team on their options for reform. Two models are on the table. The first is a proportional property tax (PPT), which would replace both council tax and stamp duty with an annual charge on a home’s value. Shorts The other is a land value tax (LVT) – an annual charge based on the value of the land a property sits on, rather than the building. The idea of a PPT is popular with Labour MPs. More than 100 of them are part of groups pushing for the end of the “regressive” council tax. Jonathan Brash, Labour MP for Hartlepool in the north-east, has called council tax “one of the most unfair taxes in Britain” – arguing that it disproportionately hits people in the north of England. He pointed to the gap between a Band D home in Wandsworth, where residents pay only £1,020 a year in council tax, and a Band D property in Hartlepool, where the bill is £2,556. Northerners would win big under PPT Andrew Dixon, founder of the Fairer Share campaign, said council tax was “absurd” because its banding is still based on 1991 property values. House prices in London and the south-east have risen “far more dramatically” than in much of the north of England and Midlands over the past three decades, said Dixon. This is why the North and Midlands are unfairly “penalised” by the current system. Fairer Share have advocated a flat 0.48 per cent PPT on a home’s current value – a plan backed by a growing number of Labour MPs. Some 77 per cent of households in England would be better off under this kind of PPT, according to Fairer Share analysis. And the average household would save £556 a year. The model could save households in Hartlepool an average of around £950 a year. The average household in Burnley in the north-west would save £850 a year. Areas in the Midlands such as Bassetlaw and Bolsover could also save £750 a year on average. “This reform could make a real difference to people’s day-to-day lives. In many parts of the North and Midlands, households would save hundreds of pounds a year – money that could be spent on local high streets, helping families and boosting growth,” said Dixon. “That is why I think Burnham is right to be interested in reform.” Londoners’ boost from end of stamp duty Some households in parts of London would be worse off under a 0.48 per cent PPT model.Council taxpayers in Tooting would be on average £200 worse off a year on average. In Hackney North and Stoke Newington, households would be an average of £150 worse off. But some people on lower incomes within these areas would gain if Burnham chose to switch to a PPT. In Hackney North and Stoke Newington, for example, 45 per cent of households would be better off. “This should not be framed as London and the south-east versus the rest of the country,” said Dixon. “Council tax also penalises many people on low incomes in London and the south-east.” Some London homeowners could gain from council tax being reformed (Photo: Mike Kemp/Getty) Some Londoners would be among the biggest winners from the reform plan, the campaigner insisted. Frequent movers would no longer have to pay mammoth stamp duty bills on more expensive properties in the capital. Scrapping stamp duty “matters enormously” to people in London, said Dixon. “Stamp duty traps people in homes that no longer suit them – older people who want to downsize, families who need more space, and workers who want to move for better opportunities.” Any increased bill would be capped at £1,200 a year for an existing homeowner’s primary residence under Fairer Share’s proposed model. And a deferral mechanism could be made available for those on low incomes who cannot afford to pay more. “We don’t want anyone forced out of their home,” said Dixon. A land tax would also favour the North Dan Neidle, founder of the Tax Policy Associates think-tank, has argued that there is a “compelling” case for an alternative reform: an LVT. His recent analysis shows that a flat LVT of 1.28 per cent on each home’s land would leave 69 per cent of households in England better off, and 31 per cent worse off. Bills would fall most in the north-east, and rise most in London, if council tax and stamp duty were replaced with a LVT, according to Neidle’s analysis. The tax expert said a PPT would be a “significant improvement on council tax and stamp duty”. But he argued that PPT could also create “an incentive to not improve property” because taxing the whole property also taxes extensions, rebuilding and renovation. However, David Fell, lead analyst at Hamptons, said a PPT had the advantage of being simpler than an LVT when it comes to possible council tax reform ahead. “The idea of working out and then taxing the theoretical value of land under someone’s house is quite tricky conceptually,” he said. Burnham has said his Government faces “big decisions” about council tax, having criticised the unfairness of the current system. The new Prime Minister said there were households in Manchester disproportionately paying “a much higher council tax than people living in much larger homes in London”. Treasury officials have been examining options for reforming council tax, as revealed by The i Paper on Sunday. No 10 denied the Government was currently “actively considering” replacing it, before pointing out that any decisions on tax are “a matter for the Chancellor to set out at fiscal events”.