Reforming Westminster’s council tax

Under new Localism rules the City of Westminster could easily become the first Local Authority to reform its council tax to boost its finances while simultaneously cutting taxes for the less affluent. The large proportion of high-value properties and the extremely low rate of council tax in Westminster means that increasing the top band alone to the same tax rate as neighbouring Kensington (hardly likely to cause a mass exodus of the wealthy) would generate an extra £10m or so. More than a quarter of properties are valued in the top two (of eight) council tax ‘bands’ while in Brighton and Hove, for example, only one in fifty properties is as valuable as that. At the other end of the scale, only one in twelve Westminster properties is in the lowest two bands, while in Brighton nearly half of properties are.

Until the Localism Act of 2011 came into force, an increase of 50% to match Kensington’s rate would have been illegal because central government capped increases at 2% p.a. Now, though, any increase is allowed provided it is approved by a local referendum. But a more important issue has also been resolved: previously, a Council couldn’t simply increase the top band alone. It had to increase all bands in proportion, and that would penalise the ‘squeezed middle’. The bands are already ‘regressive’; middle-rate taxpayers are paying about three times as much, relative to their property value, as top rate payers.

Now  the Department for Communities and Local Government (DCLG) has confirmed that a Local Authority can shelter lower-band properties from the increase by giving them rebates. In Westminster this rebate could be generous enough and widespread enough to secure a majority in a referendum for a combined package of modest increases, rebates, and a surplus which the Council could spend on improved services. (The Council’s current Health and Wellbeing Strategy, for example, complains about underfunding by national government.) For more details on how to reform council tax, see the post below: Land Value Tax: any Local Authority can impose it now. In that post, I point out that this council tax reform is the ideal first step in a transition to Land Value Tax (LVT), one or other form of which is in use practically everywhere else in the developed world. There is wide cross-party and expert support for such an improvement of the idiosyncratic UK property tax. Westminster, 200 years ago the only ‘reformed borough’, could again be at the forefront of British political change.

For a summary of the advantages of LVT, see the even earlier post below: Land Value Tax: Why Wait Longer?

Note: The People’s Assembly Against Austerity were responsible for carrying out research and discussions with DCLG  that I have used.  The press widely reported their radically different proposal under the name of ‘Progressive Council Tax’ when the Green Party in Brighton and Hove was said to be evaluating it. That proposal was for a complex means-tested rebate not the simpler adjustment of property tax, compatible with LVT, described here.

Version 6, 18 October 2013

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