More than 10m households would benefit from lower council tax bills if the government reformed the “arbitrary and unfair” annual property charge to reflect the growing divide between London and the south-east and the rest of England.
The Institute for Fiscal Studies (IFS) said average bills across most of the Midlands and north would fall by more than 20%, with more modest falls across much of the south-west and parts of east England should ministers introduce a system more aligned with house price growth over the past 30 years.
Council tax bills would fall by 56% in Blackpool, 57% in Stoke-on-Trent and 60% in Kingston upon Hull, the tax and spending watchdog said, ending decades of punishing tax rates in many of Britain’s most deprived areas.
London and its outskirts would face an average 20% increase in council tax bills, with households in Westminster and Kensington and Chelsea facing increases of 410% and 358% respectively after a boom in sales of multimillion-pound homes in these areas.
Stuart Adam, a senior research economist at the IFS and an author of the report, said a radical overhaul would create clear winners and losers, with 10.1m (42%) households having their bills fall more than £200 a year while 4.2m (17%) who would face an increase of more than £200 a year.
“The failure to revalue council tax for almost 30 years means the tax bills households face bear less and less relation to the values of their properties,” said Adam.
“At a minimum, the government should revalue properties and put in place a cycle of regular and frequent revaluations to stop us getting in this situation again. Ideally it would undertake more radical reform too.”
Council tax was brought in to replace the community charge, known as the poll tax, in 1993.
The report notes that property values in London have risen more than six times since the mid-1990s, compared with less than threefold in the orth-ast of England.
“Values in Hackney are over nine times what they were then, compared to just over 2.5 times in County Durham. But council tax bands and bills, as well as central government top-ups to councils’ revenues, are still based on relative property values in 1991, almost 30 years ago. These bills and funding arrangements are increasingly arbitrary and unfair,” the report said.
Band D rates range from £755 in Westminster to £2,043 in Rutland, with areas around Teesside, County Durham and Northumberland in the north-east having some of the highest band D rates in the country.
The IFS said revaluation and reform of council tax could contribute to the government’s “levelling up” agenda. “But this depends crucially on central government funding for different councils being reallocated in line with the updated property valuations and council tax system.
“If this funding were not adjusted, each council would need to raise as much council tax as now if it wanted to maintain spending.”
