More bands may help align council tax with property values

The Chartered Institute of Taxation (CIOT) believes that a suggestion by the Welsh Government to add more council tax bands covering the entire housing value scale and re-evaluate the council tax bands more frequently will align the tax more closely to property values.
To many, council tax revaluation is long overdue. For a tax which purports to be based on house values, council tax bands in Wales are still based on house values at April 2003, 19 years ago – well before the dramatic rise in house prices across the UK since then and the increase in the population of Wales.1 In England and Scotland, council tax is based on values in April 1991, a vast 31 years ago. This has led to concerns about whether it is fit for purpose and fair, as the amount of council tax charged for a house in band I (the highest council tax band in Wales) is currently three and a half times as much as a house in the lowest band (band A) whereas a home in the top band could be worth at least nine times as much.

 

CIOT has responded to a Welsh Government consultation2 on reforms to council tax in Wales. The Welsh plan to revalue all 1.5 million properties in that nation and more frequent valuations in the future. It considers adding more bands to the top and bottom ends of the scale, potential improvements to the framework of discounts, disregarded persons exemptions and the design of the Council Tax Reduction Scheme which provides support to low-income households. The Welsh have the power to make these changes without Westminster approval.

 

Ritchie Tout, Vice-Chair of CIOT’s Welsh Technical Committee, said:

 

“If the principle behind the reform is that bills are proportional to house values, then the suggestions from the Welsh Government get closer to that.”

 

The Welsh Government wants a fairer and more progressive council tax system amid understandable concerns that the current regime is unfair and confusing. The Welsh Government would like a new system that helps to reduce wealth inequalities, considering criticism that the council tax system does not reflect current property values and appears to treat taxpayers unequally. In the longer-term this could place Welsh tax revenues at risk if people are less willing to pay taxes they consider unfair and this may hamper wider policy initiatives, says the CIOT.

 

Ritchie Tout said:

 

“It is likely that five-yearly and possibly even more frequent revaluations in Wales will help achieve the Welsh Government’s goal of a fairer and more progressive tax system. And adding more bands covering the entire property value scale and re-evaluating the bands to align them more closely to property values could help, albeit with some added complexity as the trade-off. But its effectiveness will depend upon the distribution of housing wealth in Wales.

 

“The transition to a new council tax system must take account of the circumstances of taxpayers’ lives in low-income or low-wealth households to achieve equity in the system and maintain public support. Effective communication by the Welsh Government to the public is key. There is a case for considering the merits and disadvantages of a targeted council tax deferral scheme for owner-occupiers to address hardship for those who are property-rich, income poor where other measures do not provide enough relief.”

 

The Welsh consultation recognises what has long concerned CIOT, that there is little awareness of what council tax pays for and how ratepayers benefit with inevitable negative consequences for how it is perceived by the public. The CIOT says it is important for Welsh Government to raise awareness that council tax only meets a portion of this spending and make it clear where the other funding comes from.

 

Ritchie Tout said:

 

“In terms of potential improvements to the framework of discounts, disregarded persons and exemptions, the existing system is very complex. This makes it difficult for people to understand and therefore access relevant support. It also makes it difficult to write guidance and for staff to administer. It is therefore a good opportunity to relook at the whole council tax system in Wales so that people who are entitled to pay lower council tax do not have to subsequently claim support.”