It is the worst tax there is. (Probably – there is fierce competition for that title.) Council tax is “indefensible” in its current form, says the Institute for Fiscal Studies. It is brutally regressive and leaves country house owners with a negligible contribution to their local government, while those in cheaper homes, who can least afford it, pay far too much. It acts as a kind of anti-wealth tax.
Finally, we have a government brave enough to reform it. Not in England, of course, but the Welsh government, as so often before, dares to go where others fear to tread. The consultation on proposals to redistribute tax so that the broadest shoulders get a fairer share ends next week, with three options for the level of redistribution being considered.
This is a real leveling up – not something the Tories ever supported. Under the most ambitious plan, the number of municipal tax bands would be increased to twelve, better reflecting actual values at the top and bottom. This means that an area high in the deprivation index, such as Blaenau Gwent, would see a sharp drop in what most people pay, while wealthier Monmouth and Vale of Glamorgan (both of which have Conservative MPs) would see an increase. Tax rates in central Swansea and Cardiff would fall by £250 to £500 a year, while the suburbs would pay the same amount more. This is revenue neutral, not a plan to raise more taxes, but simply to make it fairer and alleviate the plight of those on lower incomes.
The history of this tax is shameful. This temporary system, drawn up on the back of an envelope by John Major, who rushed to abolish Margaret Thatcher’s poll tax, was intended to be quickly overhauled. That has never been the case. It was unfair from the start. In his book Follow the Money, the director of the IFS, Paul Johnson, points out that even in 1991, when the tax bands were set, and H, the most valuable properties paid only three times more than the least valuable tax band A. houses, despite that they are worth eight times more – and now that gap is much wider. Of all the necessary tax reforms, this, he writes, is “an absolute no-brainer.” Property valuations have remained unchanged in England and Scotland since 1991 – although Wales saw a small revaluation 20 years ago. He says the average property in Westminster pays just 0.06% of its value, while in Hartlepool they pay 1.3%, a rate more than 20 times higher.
In a shocking report on council tax arrears at crisis levels, Citizens Advice Cymru expects this reform to ease the burden on many households. More than half of those in arrears with the council are in budget deficit, spending more on bills than their income can cover. There are schemes for council tax reductions, but since the introduction of universal credit these have to be applied for. The complexity is diabolical: the unreformed Welsh system has 53 different exemptions and reductions, but Citizens Advice Cymru says most council tax debtors are unaware of any of them.
It is a much hated, unjust tax, but so far no government has dared to revalue property. Why? Political cowardice, even if, as in the Welsh plans, there are many more winners than losers. The losers will be richer, more powerful and, above all, older and louder, while the long-term persistence of such an unfair tax reminds us that those on the lower rungs can never raise the same level of political decibels in protest.
Rebecca Evans, Wales’ Secretary of State for Finance and Local Government, sitting in the government offices in Cardiff, taps the table when I ask if she is concerned about the noisy losers. “The focus groups were very educational. We discovered how little awareness there is about what council tax is and what it does,” she says. “But we have to do this because it is the single most important thing we can do for fairness.” It is part of Labour’s partnership agreement with Plaid Cymru, as it was in both manifestos. Was she tempted by a local income tax? “No, because ownership is harder to hide than income, and ownership is a good proxy for income.”
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But she has a much more radical idea. “We are actively pursuing a land value tax,” she says, because it is more progressive and encourages development. “And we want the power to impose a vacancy tax, to prevent developers from sitting on land intended for development. She wants to raise money with a visitors levy to cover the costs of tourism, as she says: “The UK is an outlier because it doesn’t have one.” She sighs about relations with the almost anarchist Tory Westminster: “For negotiations on complex budget matters I am on my eighth chief secretary [to the Treasury] since 2018.” She had just had her first phone conversation with the latter.
Council tax reform is “unequivocally a good idea”, the IFS says in its analysis of the Welsh government’s plan. Although she regrets the ‘unfortunate’ retention of the 25% discount for singles, as it benefits the wealthy most and does not encourage singles to move out of oversized homes. But there is only so much reform they can accomplish in one leap. Councils in Wales have just been given the power to charge a 300% council tax on second homes.
The great hope for decentralization is that governments will experiment with new ideas. Wales has a good track record: the country was the first to charge for plastic bags, the first to pay the real living wage to care workers, and the first to introduce a basic income for care leavers; and it has banned smoking in public places, cracked down on no-fault evictions of tenants, and is introducing free school meals for all primary school pupils before England does. England often follows, dragging its feet, while devolved governments show what can be done. Westminster will be watching tax reforms in Wales to see how much noise the rich losers are making.
Mark Drakeford, the First Minister of Wales, who will resign next month, has been a pioneer. Watching him from the gallery at Prime Minister’s Questions, where Senedd members are discussing the terrible news that 3,000 jobs are to be cut at the Port Talbot steelworks, I think how unrecognizable this scene would be to Westminster observers. Polite, speaking in Welsh and English, Drakeford presides over none of the silly insults, false facts, jokes and boorishness of the House of Commons PMQs. The political divisions are just as great, but this modern, round chamber, which elects its members fairly in proportion to the votes cast, has lessons to learn. If they can lead the way with successful council tax reform, it would be another gift from Wales to the rest of Britain.