Local government’s sole tax is withering away by Tony Travers

A very interesting view on council tax.

11 October 2012 | By Tony Travers

So there will be no new council tax bands, no mansion tax and, increasingly, not much likelihood that local taxation can ever escape its position as the only government revenue source that is regularly permanently capped. It was announced on Monday, at the Conservative party conference, that councils would be required to hold a referendum if they intended to increase their 2013 council tax by more than 2%.

Councils that set a zero increase in tax will receive a grant equivalent to a 1% increase. Assuming most authorities will choose the ‘freeze’ option, council tax in England will have been frozen for three years.

Scotland, under SNP rule, has had a freeze since 2007. On both sides of the border, local government’s sole tax is withering away. In the Department for Communities & Local Government’s publication, Local Government Financial Statistics 2012, the government says: “Since the introduction of council tax in 1993-94 average Band D council tax bills have increased by 153%, 2.3 times the rate of inflation.”

This apparently shocking analysis omits the fact that the yield of income tax has jumped by 167% in the same period and VAT by 169%.

Because of its visibility, lack of a buoyancy and because it is a local revenue, successive governments have sought to limit council tax. Neither Labour nor the coalition have dared to revalue the tax base, so we are now basing local taxation on price relativities in 1991. Imagine paying income tax on the basis of 1991 incomes. Such a system would be seen as unfair and indefensible.

The council tax freeze that results from the vice-like referendum arrangements created for local government will save households perhaps £700m in 2013-14 – about £30 to £40 each. In the same year, the chancellor will increase the government’s overall tax take by £31bn. That is, by the equivalent of £1,250 per household. The government does not require itself to hold a referendum each time it pushes up VAT or excise duties.

Local taxation has been made so perceptible and unpopular that it will surely remain capped for the foreseeable future. The tax base is impossible to revalue. In short, council tax is dying.

Tony Travers, director, Greater London Group, London School of Economics

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