Reforming Council Tax

Background

Dictionaries and the Local Government Association define DEVOLUTION  as the transfer or delegation of power to a lower level, especially by central government to local or regional administration. Lawyers may argue it, but to me the “transfer of power” means the ability to raise funds and to decide what to spend them on. Responsibility in this means doing it sensible with the approval and support of the local electorate.

I wrote a detailed piece on funding local expenditure in was first published in March 2021, before Councils, like Birmingham, Nottinghamshire and Croydon were declaring that they were broke. The principle behind this idea is gaining support, no less than Andy Burnham, the Manchester Mayor, and Michael Gove are looking at the topic, but will they ever agree? The Economist in their lead article “Free the North” December 10^th, 2022, also argues that local areas should be freer to raise funds. And most recently Simon Jenkins in The Guardian.

If the local Council Taxpayer paid more, they should take more interest in local elections and vote for those likely to provide the service they desired most efficiently. This could also develop the skills of local politicians and be a training ground to improve the standard of our national MPs.

Councils are getting into severe financial difficulties! There are many reasons for this, but one is that Central Government funds much of their spending and is unwilling to provide more. And Councils are not free to raise sufficient cash from their electorate to provide the services their voter’s desire. There are many characteristics that define an area, age profile, urban or rural area, ethnic make-up, and industry to name a few. So, if the locals wish for more and better service than the base line of statutory service that Central Government may fund but is increasingly unwilling to fund, the local authorities at have to raise funds buy some means.

At the time, my initial article I did not address the various funding options before opting for local taxation based on area. So, what are the other options, as the total funding by Central Government is not going to happen.

First option is updating the current Council Tax system based on outdated property values and the Barnett formula and wait another decade or two and then, do it again. And we must also consider whether the majority of local services should be funded from Westminster. And we must also consider the question of whether the majority of local services should be funded by an inevitably blunt tool from Westminster. Should Westminster decide how many potholes to repair? Would it not be better for the locals to decide on the type and quality services that they require and whether they are prepared to pay for them.

Second, the logic that created Poll Tax was reasonable as it is undoubtedly the people of a council area that create the demand for services. But it was justifiably unpopular because larger, often poorer families would face the greatest increase in tax and the least ability to pay. I would suggest that since an area’s population is forever changing, births, deaths, marriages, divorces, and movement it would also be an administrative nightmare. The worst of all solutions would be to base the tax on the Electoral Register causing people to not register the vote, the opposite to what we should seek to achieve.

Third, in the USA, each State sets a Sales Tax. In the UK administrative authorities are geographically much closer together. The minimum base area we could conceive is at County or Metropolitan level and online purchase would aggravate and existing difficulty. So, one could see people driving over a county border to save a percent or two on purchases. Then some areas would have lots of income than next door areas starting a catchup spiral and each also having to decide how to disperse their funds in their more local Administrations.

The one unchanging factor within a Council boundary is the area that it contains and is responsible for controlling and servicing. Much of the work in surveying the area that an individual or corporate entity owns, and controls is already done. The Council would set a budget for the services it seeks to provide and divide that amount by the area as a first pass at a “Base Rate.” A “Multiplier” should be applied to the Base Rate if the land use is not in keeping with the desires of the Council and supported by the electorate. The impact of this over time would be to drive out underutilised land and undesirable uses of land. A safeguard, as now, limiting the tax increase to 5% over each preceding period would need to be in place to allow the system and taxpayers to adjust.

Another important impact is that Councils would have to engage in a meaningful dialogue with their, hopefully more energised, voters. This would be aided by having elections for one third of the councillors every year. This would enhance the political skills of councillors enabling some to become better MPs if they wished to take that route.

My published essay of a few years ago suggests the multipliers that may be applied to each category of land use in a more developed way.

Introduction

In most Local Elections and even bye-elections, the percentage turnout is in the 40s. Apathy is the worst enemy of a democracy. Also, there was considerable clamour from many quarters for more devolution. This essay explores these two issues.

The Economist believes that the UK property taxes are poorly designed (Issue April 15, 2023). Stamp Duty discourages moving and Council Tax is based on values in 1991, selected after the debacle of the Poll Tax. This authority also suggests that building higher to solve the housing crisis would be encouraged if the Local Tax were based on the land the property owner controls.

The clamour for regional devolution, which may be a good thing. But those who wish for it should recognise that it would suit this Government, which is a low tax party by nature, and is also faced with a massive deficit, to devolve the revenue generation for local services. Central government would fund the large and essential  infrastructure projects.

I favour the principle that more of what is spent locally should be decided and raised by local taxation. This has the advantage of stimulating the interest in local governance. Demands for more or different services can be put directly by local authorities to voters (or the reverse) and agreed or otherwise by the voters and local Council. Essential spending on Education, Health and Social Care would be under-pinned, as now, by Legislation.

The route to more local funding should be the reform of Council Tax to be levied on the area of the land controlled by its owner and the use to which it is put.

It is time to explore this, as the trend of central government policy, for reasons of ideology and to reduce their deficit, is to reduce the amount of financial support that they provide to local government. Both Andy Burnham and Micael Gove have commented on the topic in the recent past. With the budget deficit as high as it is the cuts in local government support could be increasingly painful. This paper covers the replacement of Council Tax and Business Rates.

I favour a tax based on the area of land controlled by the owner, rather  than Local Income Taxes. Local Sales Taxes would be counterproductive, as it would drive buyers and potentially business over a border to a lower tax regime. As was seen on the island of Ireland.

This land area basis is fairer, as there is no subjective judgement of land value, just the area owned, which will leave no room for debate. The change should release land for home building or other uses and make lease holding less attractive. It will also produce more local voter interest in the policies and decisions of their local councils. Landlords owning multiple properties may pay more, but high-rise residents would pay less. I do not see either of these impacts as showstoppers.

Regrettably at this time of pandemic and the recovery from it and possibly more needed to be spent on defence, potential savings from Income and other Central Government taxes will go to reducing the large build-up of UK Government debt. So, the populace will not be paying less income tax, when called upon, in many instances, to pay more local tax. But in time this should reverse.

The Advantages

The advantages of the reform are:

The Proposition

The reform of local Council Tax suggested is based upon LAND AREA. People or corporate entities controlling the use of a specific area of land should pay for that privilege.

The Mechanics

All local authorities have jurisdiction over an area of land. One of the characteristics that they have in common. The first step is to calculate the area of land in their control. No exclusions for say Defence Estates or Crown Lands should be made, as an objective of this reform is to free up all underutilised or badly used land. You see below that this multiplicand is open allowing the local authority to attract or deter Central Government and any other facilities that do not fit in with their long-term goals.

The next step is to determine the desired revenue budget. The simple division of desired budget and area of land provides the Basic Rate of Tax per square metre. The person (or persons when in community living) or corporate entity controlling the use of the land would be liable for this rate.

There are refinements that should be made. A scale of multipliers could be applied. The suggested initial scale of multipliers is as follows, although local authorities would be free to vary them.

Land User Class	Multiplicand
Transport Corridors + Footpaths	0
Natural	0,1
Agriculture & Horticulture	0.2
Amenity & Parks	0,2
Health & Care Homes	0,2
Retail Business	0.3
Indoor & Outdoor Sport	0.5
Domestic Housing	1,0
Central Government/Defence	??
Non-Retail Business	1.5
Warehouse	2.0
Transport Hubs & Airports	2.0
Non-Polluting Industry	3.0
Polluting Industry	4.0

 

A more penal category is suggested. Where land is underutilised, dilapidated or the land use is out of character with its surrounding area would have a multiplicand of 5.0 or even more applied. This would drive controllers of that land to bring the land up to the required standard or to release to new owners or allow it to revert back to nature. It would also remove the need for Compulsory Purchase Orders, as the multiplicand is progressively increased from 5. Central Government would control the definitions of land use.

In an earlier draft I considered a parameter based on the distance from a local development centre. This was rejected as it brings in a judgement call of the value of distance from an urban centre. Poor use of land in a City/Town Centre can be dealt with by the penal multiplicand.

The reform would encourage building higher. There is nothing wrong with this if the designs are to the highest standards. One can see that flats would pay less as multiple owners share in the control of the land on which their building stands on. But that is not as important as the ability to drive out land usage which is not in line with the needs of the locality. Say a scrapyard or waste dump in the middle of a residential area. Cases of which have figured in the news. Leaving properties empty or letting the house or garden fall into disrepair would also increase the multiplier factor on a temporary basis until the property was put back into use and good order.

Central Government would decide and define the Classes of Usage. But local governments would be free to apply the multiplicand that they think suits their area, but in a transparent way..

Appeals Processes

Appeals about the land classification would be managed by national governments and thus refine the classifications. For example, rail stations or the rail corridor would be at zero, but major hubs would be considered as a Business. Shops or cafes sited on say, a National Trust parkland would still be classed as an amenity, the basis of this being that 90% of the classification area is the governing class. On a similar 90% basis, parking lots intended for the use of an office block, or a factory would be classed as Business and Industry, respectively.

Greater refinement of suggested definitions will be required in many cases.

Appeals against the assessment of property area will be overseen by locally based Chartered Surveyors. In the case of all appeals, the settlement would be back dated to the original date of the appeal.

And Safeguards

There has to be safeguards in such a reform. This would be that no person or entity pays more twice the amount of their latest annual Council/Local Tax Demand on an annual basis. This could be time limited to say, 5 years in order that the benefit of improved land use could start to be realised.

Similarly, Central Government must be constrained not to reduce their grants to any local authority by more than the rate of inflation in any year compared to the previous year. Government must also ensure that the Statutory requirements required of local authorities continue to be covered and if not they risk being put into “special measures.”

Homeowners with large gardens will be able to release the land for development subject to Planning Approval. Small gardens are not likely to have any development value, so owners will not be able to avoid the tax if the land cannot be sold.

More on Transport

Land dedicated to transport is not fully covered in this pass at the policy. Airports have not been mentioned. But rail marshalling yards and large areas of parking will also need further consideration. These functions probably contain some underutilised land. There is a potential issue with this land could be narrow, possible tapering strips that may only have utility in reverting back to nature.

Rev 24 – 4 April 2024