The Conservatives have ruled out revaluing and reforming council
tax in England as part of what they term their ‘Family Home Tax
Guarantee'. The Conservatives also pledge not to increase stamp
duty land tax, paid when properties change hands.
David Phillips, an Associate Director at the Institute
for Fiscal Studies responded:
“The new ‘Family Home Tax Guarantee' would mean perpetuating the
increasingly absurd situation whereby the council tax that
households pay is based on the value of their property relative
to others in England on April 1st1991 – a third of a
century ago, when Mikhail Gorbachev was President of the Soviet
Union and Chesney Hawkes topped the charts with The One
and Only.
Since this one and only valuation of houses, values have
increased by massively different amounts around the country,
meaning that at least half are now effectively in the ‘wrong
band'. Households in the North and Midlands are often in too high
a band – and pay too much – while those in London and its
environs too low a band – and pay too little – compared to what
they would under a modernised tax. In other words, in its current
form council tax works against levelling up.
In contrast the pledge not to increase stamp duty land tax is
sensible. It is one of the most economically damaging taxes
levied by the government, significantly increasing the cost of
moving and gumming up both the housing and labour market. It
should not be increased – rather it should be reduced or,
ideally, abolished.
The revenue from stamp duty would be very hard to give up though.
A good package would be one that combined the abolition of stamp
duty with a revaluation and reform of council tax. Raising less
from high-value properties via stamp duty and more from a
revalued-and-reformed council tax would be fairer and better for
growth. Fairer because the tax system would no longer penalise
people who move more, or whose properties value has not kept pace
with the rest of the country. And better for growth because it
would no longer hinder people from moving to better suit their
circumstances and for work.
By ruling out revaluation and reform of council tax, has made it harder to deliver
growth-enhancing reforms to the tax system. Labour and other
parties should not follow suit.”
Policy background and analysis
IFS researchers analysed the potential impact of revaluing and
reforming council tax in England in a report published in 2020.
It considered several options from a simple revaluation to a
revalued and continuous, proportional residential property tax.
The full report and a summary of key findings can be downloaded
here.
Two updated figures from this report illustrate the key problems
with our current council tax system: that is out of date, and
highly regressive with respect to property value.
Average property values have increased by massively
different amounts in different parts of England since properties
were valued for council tax – around twice as much in London as
the North East of England
Source: Author's calculations using HM Land Registry house price
data.
Note: January 1995 is the first month for which values are
available by region. At a national level there was little change
in property values between April 1991 and January 1995.
Council tax is a much higher share of property value for
low value properties than high value properties
Source: Author's calculations using the average council tax band
D rate in 2024-25 and tax rates by band.
Two figures illustrate the potential impacts of council tax
revaluation and reform. These are based on property values as of
2019 and recent changes would mean the patterns now differ
slightly but the broad patterns across places and the income
distribution would be very similar.
Revaluing council tax and adjusting funding for councils
appropriately alongside this would mean falls in average bills
across most of the North and Midlands, and increases in average
bills in London and nearby areas
Source: Figure 4.7 of https://ifs.org.uk/publications/revaluation-and-reform-bringing-council-tax-england-21st-century.
Revaluation, on its own, would do little to affect the
progressivity of council tax across the income distribution.
Making council tax proportional to value would see low and middle
income households gain and high income households lose, on
average
Source: Figure 5.4 of https://ifs.org.uk/publications/revaluation-and-reform-bringing-council-tax-england-21st-century
ENDS
Notes to Editor
Council tax needs urgent reform – not being frozen in time in
1991 is a response by David Phillips and can be read on
the IFS website here: https://ifs.org.uk/articles/council-tax-needs-urgent-reform-not-being-frozen-time-1991
