Council tax is an outdated and regressive levy on households that should be scrapped in favour of a progressive levy on property, according to a report by the Resolution Foundation.
The thinktank said council tax had become almost flat-rated in some areas to leave it resembling the much maligned poll tax of the early 1990s.
With bills about to jump by almost 6% from next month in many parts of the UK, the government should consider far-reaching reforms or a replacement of the main tax on property before it became discredited and fuelled public resentment, the report said.
Laura Gardiner, principal researcher at the foundation, said the unpopular community charge, which was more commonly known as the poll tax, was considered a failure and abolished in 1991, “in large part due to the unfairness of a flat rate tax where families generally paid the same amount irrespective of the value of the property they lived in”.
She said analysis showed that council tax has “only a very weak link to property values” that meant it was “highly regressive”.
“Someone living in a property worth £100,000 pays around five times as much council tax relative to property value as someone living in a property worth £1m. This is exactly the kind of result that opponents of the poll tax wanted to avoid and in stark contrast to income tax, which increases with incomes in a progressive way so higher earners pay a higher average tax rate,” she said.
There are eight council tax bands that determine annual charges. All the bands are based on 1991 property prices following the failure of successive governments to sanction revaluations.
The highest band (H) is for homes valued at £320,000 and above, despite the average London houseprice now being more than £480,000. Purbeck district council in Dorset will charge band H homes £3,747 from April while Wandsworth council in London, which hosts some of the most valuable homes in the UK, will charge £1,433.
The foundation said ministers should consider replicating the 2017 reforms implemented in Scotland across England and Wales, which involved increasing council tax rates in the top four bands and generated a little over £1bn.
An alternative reform would be a “mansion tax” surcharge of 1% on the value of properties worth more than £2m and 2% on the value of properties above £3m, which would also generate just over £1bn.
A broader overhaul could involve a switch to a 0.5% charge on all properties that would result in a £100,000 home in Newcastle being charged £500 a year and a similar sized £1m home in London charged £5,000 – a £3,000 increase on current charges.
Earlier this year Labour’s Andrew Gwynne suggested his party could scrap council tax and replace it with a “radical” new system for funding local government.
Without giving details of planned changes, Labour’s shadow communities secretary said: “Council tax is broken. It is not fit for purpose.”
In Labour’s 2017 election manifesto it hinted that council tax could be scrapped in favour of a tax on land that would target some of Britain’s richest families.
Sajid Javid, the communities secretary, has so far shown little appetite for reforming council tax. Critics of the current system say most reforms are blocked by households in expensive properties that live in areas of the country dominated by Conservative MPs.
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