England’s council tax bands have been left untouched for more than three decades. The eight valuation bands – A, B, C, D, E, F, G, H – range from low to high and determine the exact sum residents will need to siphon off from their monthly earnings to fund their local authority. These figures are based on property valuations from 1991 – the same year that the Soviet Union collapsed, the Gulf War ended and Nirvana released Nevermind. In the 30 years since, UK property values have increased by more than 400 per cent, according to the UK house price index.
In her upcoming Budget – which will land tomorrow at lunch time – Rachel Reeves is reportedly considering whacking those in the top three bands (F, G and H) with a new levy which is expected to raise between £400-450m. It is already being dubbed a “mansion tax”. Kirstie Allsopp is up in arms. “It’s completely performative,” the Location, Location, Location presenter (who once swallowed an AirPod) told Times Radio.
It would make sense as one of “smorgasbord” of many tax increases Reeves is expected to introduce tomorrow: taxing properties in the top three bands will hit the wealthiest in society, in line with her stated aim of shielding lower earners and asking those with “the broadest shoulders” to contribute more. As the Chancellor looks for levers to pull to raise revenue without breaking Labour’s manifesto promise not to tax working people, you can understand why this is an area she is reportedly exploring.
It should certainly please restive Labour MPs. Calls for a “wealth tax” have been building on the back benches – last week 30 backbenchers signed an early day motion brought by Socialist Campaign Group secretary Richard Burgon calling on the Chancellor to introduce a wealth tax. “The Budget must be the moment when the Chancellor finally grasps the nettle and introduces a tax on the very wealthiest in our society,” Burgon said. Reeves’ allies would counter that there were plenty of taxes on the wealthy – such as VAT on private schools, private jets and changes to inheritance tax – in the last Budget.
Many Labour MPs are privately enthused by Reeves’ reported council tax levy. “If you’re asset rich, you’re rich!” one said. Another added, “any measure that taxes the rich has my support.” But without the detail of these reported council tax changes – how they will work and how far they will reach – some still have reservations. Some in Labour are still worried about hitting the “asset rich, cash poor” – those who may be living in homes that have rocketed in value but who don’t have much money to hand. Certainly some London Labour MPs are nervous about the impact on some of their own voters.
Council tax is a regressive tax: the amount paid is based on out of date property values, such that Hartlepool dwellers pay more that those living in Westminster. Tax rates do not rise with a household’s income or a property’s value. Angela Rayner – the former Housing Secretary, who resigned in September – had been reportedly attempting something of an overhaul. Her departure from government and replacement with Steve Reed (who is deeply focused on “Build, baby, build”) seems to have relegated these plans.
Many MPs are quietly agitating for reform. “Council tax is a regressive form of taxation that unfairly targets the poorest. It hasn’t been looked at in decades and is well overdue for reform,” one said. Referencing Reeves’s reported levy, another told the New Statesman, “if it’s a stepping stone to proper reform, great. But raising tiny sums through the existing utterly broken system, the funds from which won’t be raised for years, is a long way short of what’s needed.” Others are not confident that the levy will be “well executed”: one Labour MP said “there might be properties in bands A, B and C that should pay.”
There are other options which some in the party have suggested the Chancellor should explore. Andy Burnham, the mayor of Greater Manchester (also touted as a future party leader), has long been in favour of a Land Value Tax, a levy on the value of the land without regard to buildings, property or other improvements which have been built upon it. As chief secretary to the Treasury during Gordon Brown’s premiership, Burnham signed off on Crossrail (now the Elizabeth Line) and has previously said he regrets not making provisions for a Land Value Tax. Mainstream – the soft-left grouping seen as a vehicle for Burnham’s election as Labour leader – has also called on the government to introduce a Land Value Tax.
There is, however, a fear across the political class about wading into this regressive system and overhauling it, for fear of creating a backlash as some parts of the country inevitably see their property tax skyrocket. Council tax, after all, replaced the unpopular Poll Tax introduced by Margaret Thatcher. It’s a difficult one to wade into, especially when politicians have failed to reach a consensus on what should replace the current system.
If Reeves does announce this council tax levy in her budget tomorrow, it may go some way to appeasing Labour’s rambunctious backbenchers. Proper reform, however, will still sit as an albatross around the government’s neck. Overhauling the country’s ailing council tax system will require political capital and Whitehall headroom – two things this Labour government will be hard pressed to find.
[Further reading: Rachel Reeves must escape the vice-grip of the OBR]
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