We need a Council Tax revaluation – and we need it now

Yes, we are in a cost of living crisis, we have had a General Election, covid, Brexit, inflation, interest rates rises… I know, I know – I can hear your embittered cries as I write this. But we really do need a council tax revaluation, and here’s why.

Council Tax pays for a vast range of day-to-day services: everything from adult social care to highways and environmental health. Reading Borough Council has a helpful ‘How do we use your money’ page that seems to be demonstrative of one of the wider issues: namely, that Council Tax makes up 71% of the Council’s Net Revenue Budget Funding (£118.9m in 24/25) and yet it covers just under a quarter of the gross expenditure budget of £486.8 million for 24/25.

Yes: 71% of the Council’s Net Revenue Budget Funding covers just under 25% of its costs. This 75% differential is covered through business rates, income from fees and charges (i.e. planning applications) but the vast majority comes from central Government by way of grants.

It's clear the system isn’t fit for purpose and, unless something is done about it, our councils will continue to struggle – which has knock-on effects for all of us, including the health of our high streets.

Based on property values in 1991 and brought into action in 1993, council tax in England and Wales is arranged in eight bands (A to H) with H being the most expensive. Band H is for properties valued at more than £320,000 (based on 1991 values). This is, obviously, problematic. Why? In June 2023, the ONS determined that the average house price in London is £528,000.

Indeed, the average flat price in Westminster (according to Foxtons) is £1,241,579 – yet the top tax bracket means that maximum liability this would attract is (a seemingly minimal) £1,946,32 per annum. However, Westminster City Council is very proactive in addressing this and had suggested splitting Band H into two additional bands: Band I for prime property and Band J for super-prime. This seems like a great place to start when you bear in mind that One Hyde Park is in its borough and the penthouse sold for £160m in 2018 (at the time taking the record for Britain’s most expensive home ever sold). However, the idea was deemed too politically radical by central  government and instead Westminster has set-up a voluntary scheme called the Community Contribution Fund which gives Westminster residents in Bands G and H the opportunity to give more to their local community. Now in its sixth year, it has delivered over £2m to provide support to the homeless, those who feel lonely and increases support for young people.

Now, this type of voluntary scheme is a fantastic idea and should be applauded. But it’s the idea to split Band H where systematic change becomes possible. Splitting Band H offers protection to the lower bands from an increase in their annual financial burden and  avoids the inevitable problems of a full revaluation. A full revaluation would create as many losers as winners, as the scheme would still need to deliver the same quantum of Council Tax income. The number of losers makes this politically unacceptable to both political parties and is the reason why there has not been a Revaluation for 31 years!

The General Election creates the opportunity to readdress this system. Business rates have taken on the burden of funding Local Authorities and Central Government. We are now in a situation whereby business rates are assessed on a three-yearly basis, and the multiplier is over 50p in the pound for most London-based rate payers. This financial burden cannot be expected to simply increase year-on-year when the Council Tax system is so artificially low for the country’s most expensive properties. We can’t complain about broken Britain and have £150m flats paying less than £2k a year to contribute to local services.

It would be remiss of me to pretend that Council Tax income is the biggest issue councils have faced in recent years. Mismanagement in some local authorities has been well publicised. So I understand a popular opinion not ‘to give the Councils more money to mis-manage’ (or variations along that theme).  

However, for every ‘bad council’ there are many more – as Westminster demonstrates – that are doing their best to deliver on behalf of residents and businesses. As we venture into a new political landscape… is it (finally) time to do something with Council Tax? The new government has a mandate for change. Let’s hope they make some.

This blog was first published on 25th July 2024 in Property Week. You can see the full article here.

Contact

Aoife Scanlon is a partner in the Lease Advisory & Business Rates team at Allsop and works within our landlord focused business rates team. In her role, she assists clients with Billing Authority issues, such as dealing with summons’s and exemptions. Further to this, she lodges checks and challenges through the Valuation Office Agency’s (VOA) Check, Challenge, Appeal system on behalf of landlord clients.