On Wednesday, the Scottish Government and COSLA released their anticipated (and widely leaked) consultation on Council Tax changes (writes Fraser of Allander Institute’s EMMA CONGREVE).
The proposals set out would see a repeat of the 2017 increases in band multipliers for properties in Band E – H with the consultation seeking views on whether the changes to the mulitpliers should be higher or lower, or not happen at all. .
Table 1 shows the proposed changes in the context of the original multipliers set out in 1993 and the reforms in 2017. The proposed changes would lead to an increase in the amounts paid of £139, £288, £485 and £781 per household (or dwelling in official council tax speak) for those in Band E, F, G & H respectively.
Table 1 – Council Tax Multipliers
| Council Tax Band | Original multipliers | 2017 reforms | New proposals |
| A | 0.67 | 0.67 | 0.67 |
| B | 0.78 | 0.78 | 0.78 |
| C | 0.89 | 0.89 | 0.89 |
| D | 1.00 | 1.00 | 1.00 |
| E | 1.22 | 1.31 (+7.5%) | 1.39 (+7.5%) |
| F | 1.44 | 1.63 (+12.5%) | 1.75 (+12.5%) |
| G | 1.67 | 1.96 (+17.5%) | 2.13 (+17.5%) |
| H | 2.00 | 2.45 (+22.5%) | 2.68 (+22.5%) |
The consultation documents note a number of valid points, but fails to mention others that are fairly fundamental to the operation of the Council Tax. Here we cover some of the main issues.
A fundamentally flawed tax
Council Tax is a regressive tax. By regressive, this means that the average tax rate (the % of the tax base paid in tax) falls as the value of the tax base rises. For Council Tax, the tax rate depends on the property you live in, meaning the relevant tax base is property value (as of 1991 – an issue we’ll return to later). The highest valued properties pay a lower % of that value in their Council Tax bill.
The consultation document restates research that was completed as part of the 2015 Commission on Local Tax Reform that found that, in order for Council Tax in its current banded form to be progressive, the Band H rate would need to be in the order of 15x the Band A rate. Given this was based on 2013-14 property values, this figure may have since increased even further.
It is a shame that the government has not revisited the 2015 analysis to provide up-to-date figures. This is not an easy task (this author was involved in it the first time round!) but the data exists to repeat much of the Commission’s analysis. Updated figures would provide a better evidence base for judging their proposals.
However, updated figures would not change the overall position: the proposed changes would place Band H at 4x the Band A rate, far below values that would be required to become anything approaching progressive. The consultation document does not shy away from admitting this, stating that the proposals will not address ‘the fundamental regressivity of Council Tax’.
How do the proposed reforms link to ability to pay?
Although Council Tax is tied to property, it is income or savings that are required to pay the bill each year. As well as being regressive with respect to property, council tax is also regressive with respect to income. That is, as your income rises, the % of your income that you pay in the tax reduces.
There are some protections in the system to ensue those on the very lowest incomes do not pay some or any of their bill. The 2017 reforms also came with a condition that anyone who had income below the national average (median) would not pay any additional amounts if they were in Bands E – H. However, the regressivity with respect to income remains an issue that these reforms will not be able to address.
If we look at the impact of the proposals on the upper half of the income distribution (where we expect most people to be outwith any form of CTR protection), the average impact on Council Tax bills range from around an additional £200 – £320 a year.
In the context of some of the recent figures on increases on increases in mortgage increases, these figures look relatively sedate (although it may feel far from that, especially for those affected by mortgage increases too).
In addition, these numbers do not include any other form of discounts or exemptions which may reduce the additional amounts, such as the single person discount. Table 2 shows that, as a proportion of household income (and with the same caveats re not accounting for other discounts) this is between 0.7% and 0.5% (i.e. a half of 1%).
Table 2 also shows that although those higher up the income distribution will pay more, the proportion of income paid decreases as income rises: that is the proposed reforms will be regressive with respect to income. Those in the top 10% of income are likely to pay a lower proportion of their income in additional tax than those in the next income decile down.
Table 2 – Additional charges faced by the top half of the income distribution
| Income decile group | Average additional charge | Average income (latest data) | Average additional charge as a % of household income |
| 6 | £201 | £27,820 | 0.72% |
| 7 | £201 | £31,928 | 0.63% |
| 8 | £222 | £37,544 | 0.59% |
| 9 | £258 | £46,384 | 0.56% |
| 10 (i.e. top 10%) | £317 | £64,896 | 0.49% |
i Average income data is taken from the DWP Households Below Average Income dataset for 2021-2022. Average income in this table refers to a reference household with two adults and no children. Income is net of tax and transfers.
This is partly a result of incomes not being directly tied to value of the property you live in. Many critics of using property values as a basis for a recurring tax cite this issue, particularly for pensioners who may have lived in a home that has accrued in value over many years, but have a relatively low disposable income (although not low enough to qualify for Council Tax Reduction).
An additional factor relates to the fact that there are relatively few Band H properties where the highest charge applies: even in the top 10% of households less than 1% of households are in a Band H property, a similar proportion to households in the 9th income decile.
The elephant in the room: revaluation
An additional fundamental issue, absent from the consultation document, is the fact that the property values used to put properties into bands are based on 1991 values. Some properties have grown much faster in value than others since then.
That means that two properties that were in the same band in 1991 may now be worth vastly different sums of money, and if there was a revaluation today they would no longer be placed together in the same band.
The issue is further complicated by new builds where finding a comparable hypothetical 1991 value is difficult.
A quick look at any property website will provide you with all the evidence you need to illustrate the issue where property value and Council Tax Band are often quoted side by side.
For example, the market at the moment in Edinburgh:
- A 2 bed ground floor flat for sale in the New Town for offers over £415,000 which is in Council Tax Band D (and therefore will not face the proposed additional charge)
- A similarly sized 2 bed ground floor flat in Craigleith for offers over £210,000, which is in Council Tax Band E (which will face the proposed additional charge)
For those not familiar with Edinburgh geography, the locations are shown on the below map*.
This is not a one off. The Commission’s analysis in 2015 estimated that over half of all properties in Scotland would have changed band if revaluation had taken place in 2014.
We could speculate, at length, why revaluation has not happened. Scotland is not the only country that has struggled to find the political appetite to make it happen (the UK Government has done no better in England), but other parts of the UK have managed it in the last two decades.
What should be happening
Most people would agree that reforms to Council Tax need to go beyond tweaking multipliers. There are a number of options available, with a proportional tax on the value of a property being the majority view of the 2015 Commission, and indeed the previous Burt Commission that came up with similar proposals back in 2006.
However, any reform is contingent on the tax being levied on correct values. That means a revaluation is necessary. Indeed, it should be a prerequisite even for the type of tweaking that the Scottish Government did in 2017 and is proposing now given the majority of properties are likely to be in the wrong band.
To continue without revaluation is deeply unfair and to take forward reforms without a revaluation just rubs salt into the wounds.
*This map contains information from OpenStreetMap, which is made available here under the Open Database License (ODbL)