Council Tax Is Broken. Devolution Could Fix It

Council tax needs binning. When its predecessor, the poll tax, was introduced in England in 1990 – a year after its debut in Scotland – London rioted. Officially known as the “community charge”, the poll tax emphasised the role of the individual in funding local services and, typically for Thatcherite policy, cost the poor more than the rich.

The unpopular levy was nominally reformed by John Major in 1992, having been instrumental in the downfall of his predecessor, but its worst facets remain in the form of council tax. Each month, irrespective of income, people in the UK pay a fixed amount in tax to the local authority based on the value of the building that they live in. Given that home ownership is in steady decline, and around 60% of those with below-average incomes are renters (in cities this percentage is much higher), this notional property value is often of no relevance whatsoever to the financial status of those paying the council tax.

It is not only the UK that taxes property based on market value. Indeed, Ireland, USA, and Italy, to name a just few, also have comparable charges. But, like Britain’s pre-Thatcher domestic rates, these property taxes are levied on the actual property owners. With council tax and business rates the only sources of direct income currently available for local councils in England as well, this isn’t just a national issue either, but a well-defined characteristic of regional inequality.

It may come as a surprise for some to learn that, despite having the highest house prices in the UK, London also has the lowest council tax rates. According to the 2021-22 Council Tax Index, the lowest rate of all for a band-D property is in the borough Westminster, at £829 per year. The City of London is close behind at £1049. Conversely, Middlesbrough, Liverpool, and Gateshead have some of the highest council tax rates in the UK, at more than £2100, even though the north east of England has the lowest housing prices in the country. This is largely because, although rental costs for average Londoners are much higher, local authorities in the city are able to raise more capital from other avenues, such as business rates. It means northerners are footing a monthly bill for decades of underinvestment from central government.

In real terms, local government grants from Westminster were cut by 37% between 2009-10 and 2019-20. Austerity policies have been the choice of successive Tory governments and, with the impact being felt disproportionately by Labour-run councils, a political weapon. Knowsley council leader Graham Morgan called the clear disparity “the equivalent of gerrymandering” in 2020, as it means voters find themselves effectively punished financially for daring to vote against the governing party. It is little wonder then, that with less access to alternative funding sources, councils representing some of the most deprived communities in the UK are being forced to maximise their revenue in the only way they see possible: through council tax. But there is another way. And through examples of existing devolved tax there is already evidence that a brighter future is possible.

Devolved futures.

Of the devolved nations, only Scotland collects its own income tax. That means a small percentage of any income taxed in Scotland goes directly to Holyrood, while all income taxed in Wales, England, and Northern Ireland goes straight to Westminster. According to the Institute for Fiscal Studies, this has helped the country create the most progressive tax and benefits system in the UK. Scotland’s council tax rates are all below the UK average, and low-income households can even have their council tax reduced or removed through the means-tested Council Tax Reduction scheme. Scotland has lower poverty rates than England, citizens have access to free university and prescriptions, and nationalisation of rail and energy are increasingly plausible (with the former already in motion). All of this means it is possible to have a much higher quality of public service, with a lower council tax rate than is paid anywhere in the UK outside of London. It simply takes far greater regional economic and political autonomy.

The burden of council tax is part of the cost of living crisis. After all, it’s cheaper to own a home than to rent in the UK – which is why, when I ran for mayor of West Yorkshire, rent control was high on my agenda. Even with a single issue such as housing costs there are a multitude of things at play, as Hanna Kettunen concluded in her 2017 comparative study of European rent regulation, writing that the regulation of privating renting went beyond simply regulating rents. “It is also regulation of other aspects of the relationship between tenant and landlord, such as security of tenure […] letting agency regulation, registration of landlords, tenancy deposit schemes,” Kettuen observed.

There are already a number of examples of how this multi-layered approach can look, so long as there is political will. In Germany, indeterminate – often lifetime – tenancies are common, while local authorities are able to cap private rent. In France, property tax is shared between resident (taxe d’habitation) and property owner (taxe foncière), and is based on the value of rental income, which itself is also subject to various controls. But once again, these solutions only exist when power is properly distributed to local governments.

These are not new ideas, either. Tax devolution is the subject of recent IFS research on local government sustainability, and one of the potential issues raised refers to cooperation and distribution between councils. That’s one of the reasons why regional assemblies in places like Yorkshire, the Midlands, north-east, and north-west England are necessary. However, as the Tory government in Westminster has already shown in their opposition to a “One Yorkshire” devolution agreement, there is no desire from them to enfranchise citizens on their own terms.

And yet, we are already at a time of great constitutional uncertainty. With aspirations of independence still simmering in Scotland and the heat turning up in Northern Ireland, the writing may already be on the wall for the union as we know it. But regions other than London must be empowered regardless. Regional assemblies should, along with Wales and Northern Ireland, have at least the autonomy that Scotland has now, and ought to have equal power to London in a voluntary, fully federalised union. Even if you’re a unionist, surely that has to be a more sustainable model to strive for?

From rent control to council tax, energy to transport, regional autonomy means the opportunity to govern according to local need. Through the Preston Model, we can see councils taking steps to end their reliance on Westminster even without devolved powers. There, local authorities and institutions are working together to ensure that any capital expenditure remains with local businesses where possible. Tax needs to work for the people who pay it and council tax does nothing of the sort. Centrally mandated and vastly unequal: it requires a radical change. But first we need to liberate local government from the whims of Westminster. And who knows? With larger-scale cooperation across regional authorities, unilateral devolution might even be possible, too.