Thinker's Corner

Council Tax: the case for reform by Peter Kenway and Guy Palmer (New Policy Institute, 109 Coppergate House, 16 Brune Street, London E1 7NJ, ISBN 1-902080-11-4). Despite the large number of voters it affects, the council tax has largely fallen from the headlines in the past decade. Kenway and Palmer believe that the regressive nature of the tax makes it unfair. While the ratio between property values in the top and bottom bands is at least 8 to 1, those in the higher bands pay only three times as much tax. The authors believe that a fairer tax and benefit system must include a reform of this obvious case of regressive taxation.

In support of their argument, the authors state: "It was once said, only half in jest, that when Nigel Lawson reduced the top rate of income tax, his ultimate aim was to get the 'top' rate of tax below the standard rate. That is exactly what happens with the council tax as it is now structured."

Kenway and Palmer call for a change of the tax rates and a redesign of the bands. They emphasise that the flexibility of the council tax system offers considerable opportunities for change and improvement. Two possible models are considered. The first permits only modest gains for those in the lowest band at the expense of a 12 per cent increase for those in the highest. The second model represents a more radical approach whereby the savings for the lower three bands are financed by substantial increases in the tax burden for those in the highest three. In both examples, council tax revenue is maintained by marginal increases for those in the central bands. The authors assert that such reform would also increase the incentive to enter work for recipients of council tax benefit by lowering their marginal tax rate.

Despite an initial claim that a revaluation of property would be unnecessary, Kenway and Palmer do find evidence of regional discrepancies in the rate of increase in property prices. They concede that this might lead to a need for revaluation.

This article first appeared in the 10 July 2000 issue of the New Statesman, Education, education, profit