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The Progressive Policy Think Tank

Council Tax has become new poll tax for poorest Londoners and must be reformed, says IPPR

The Council Tax system is regressive, unsustainable and puts an unfair burden on London’s poorest households

London’s poorest households are being hit by a tax that increasingly resembles the poll tax, according to a new report by IPPR The think tank’s research has found that a household living in a property in Band A in London would on average pay nearly five times what a Band H household would pay as a proportion of property value (0.5 per cent compared to just over 0.1 percent).

The devolution of and successive cuts to Council Tax Support also mean that the burden of council tax payment is significantly higher for those on the lowest incomes. IPPR analysis has shown that the burden of council tax for the poorest Londoners, after taking account of the current level and take-up of council tax support, is more than six times greater (8.1 per cent) than on those in the highest income decile (just over 1.3 per cent). Meanwhile the number of those in arrears and facing prosecution has dramatically risen.

The report says the current system is also increasingly unsustainable as a source of local government finance, not least due to its regressive features, discounts, exemptions and the inconsistencies between residential and commercial taxation. Meanwhile, upward pressures on local government spending are rising.

The tax, which relies on outdated property values from 1991, needs fundamental reform. Yet for too long political leaders have put council tax reform in the ‘too difficult to touch’ box. The report argues that now real action needs to be taken to create a more progressive, fair, efficient and sustainable system.

The IPPR report ‘A poor tax: Reforming London’s council tax’ calls for major reforms to the system in three stages. The first stage seeks to devolve the system to the capital, the second to provide greater protection for the poorest Londoners, and the third calls for a comprehensive overhaul in the long-term.

In the short-to-medium term, IPPR recommends:

  1. Devolving council tax to London – A reformed system needs a sub-national approach, rather than the current overly centralised one. London’s unique housing market and devolved government make it the ideal candidate to pilot a customised devolution deal.
  1. Protecting those on low incomes – A capital-wide council tax benefit system is needed to support London’s most vulnerable households. This will ensure no minimum payment is required of those on the lowest incomes and restore eligibility and reliefs to their pre-2013 levels.

    This could be paid for in part by introducing a council tax premium of 200 per cent for all empty homes (twice the current council tax rate), rising to 300 percent (three times the current council tax rate) after two years of being unoccupied. A premium of 200 per cent (twice the current council tax rate) should also be applied to second homes. IPPR calculates this will raise well more than £200 million a year.

In the long-term, IPPR recommends:

  1. Fundamental reform – replace council tax with an annual flat-rate tax proportional to present day property values. This should be levied on owners rather than occupants. A rate of 0.25 per cent would be fiscally neutral for London and 80 per cent of households would benefit from paying lower tax.

Due to the considerable scale of reform proposed, IPPR recommends a phased approach, offering transitional relief, deferral mechanisms and continued protection for poorer Londoners. The report says it is also important that these reforms should be accompanied by an improvement in public services, through central government investment to ensure reform commands political and public support.

IPPR has found public appetite for reform, with many agreeing that the current system is unfair. Londoners also said that they could support a more progressive property tax system which was accompanied by an income support system, as proposed in the report.

Luke Murphy, IPPR Associate Director, said:

“Council tax now looks very much like the poll tax it replaced and it hits the poorest the hardest.

“The council tax system should be devolved to London, so the capital can decide its own future. A capital-wide council tax benefit should also be introduced to protect those on the poorest incomes, restoring the protections available to them prior to 2013.

“In the long-term, fundamental reform of the system is required to deliver a fairer and more sustainable system of local taxation.”