Magazine article Public Finance

Location, Location

Magazine article Public Finance

Location, Location

Article excerpt

A statement of principle is needed on whether council tax should remain a truly national system

Sir Michael Lyons has a difficult task. He wants to produce a paper that sets out a direction of reform to enable local authorities to have more financial freedom and to be more clearly accountable for the funds they raise. He does not want to issue a report with good policies that just sits on the shelf and is forgotten. Yet he faces a government that has cancelled revaluation in England and is unlikely to favour radical reform.

How does he address this dilemma? In part, by recognising that the scrapping of revaluation means that he will have to answer a more fundamental question than just how council tax should be brought up to date. Now he will have to answer the 'why' question first: that is, why council tax should be brought up to date at all, rather than being left to rely on the original 1991 valuations indefinitely. This is a question of principle.

The Centre for Council Tax Reform at the New Policy Institute has previously produced two pamphlets on council tax that have influenced the debate on local government finance and provided a backdrop to the Lyons Inquiry. In its new discussion paper, submitted to the inquiry, it has identified four areas where the principles need to be set out.

The first is revaluation. The basic case for revaluation is that, over time, the value of properties relative to one another changes, sometimes by a lot.

House price indexes suggest that this might be so. In Kent, for example, the average sale price of detached houses in spring 2006 was 204% higher than those sold there ten years earlier. By contrast, the average sale price of flats and maisonettes was 272% higher. The size of this difference is enough to suggest that the bands these types of property occupy relative to one another are no longer correct. Revaluation is needed to sort this out.

As well as differences between the types of properties, there are also differences between local areas. This is not just a question of one road 'going up' relative to another but of whole areas changing. What was an industrial wasteland 15 years ago can be a residential area now. The idea of a '1991 value' for the homes there is therefore pure guesswork.

Without a proper basis for comparisons, anomalies are bound to creep in. One council leader we spoke to said that, in his view, new properties tended to be put in higher bands than existing ones.

The basic case for revaluation is that, without it, the council tax becomes ever more an arbitrary tax. Principled, rather than arbitrary, taxation is the cause that we hope the final report of the Lyons Inquiry will champion. This means going further than in the interim report, which expressed the opinion that 'revaluation will be necessary if council tax is to remain credible as a property-based tax in the long term'.

The second area where a statement of principle is needed is over whether council tax is going to remain a truly national system. Again, this is an issue that has arisen only since the Lyons Inquiry was set up.

The cornerstone of the tax has always been that central government makes its decision about grant allocations in a way that requires all households in the same council tax band, wherever they are, to pay the same rate of council tax. …

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