Everything about Council Tax totally explained
Council Tax is the system of local
taxation used in
England,
Scotland and
Wales to part fund the services provided by local government in each country. It was introduced in 1993 by the
Local Government Finance Act 1992, as a successor to the unpopular
Community Charge. The basis for the tax is residential property, with discounts for single and vulnerable people.
As of 2008, the average annual levy on a property in England was £1,146.
Organisation
Council Tax is collected by the local authority (known as the
collecting authority). However, it may consist of components (precepts) levied and redistributed to other agencies or authorities (each known as a
precepting authority).
Collecting authorities
The collecting authorities are the councils of the
districts of England,
principal areas of Wales and
council areas of Scotland, for example the lowest tier of local government aside from parishes and communities.
Precepting authorities
The precepting authorities are councils from other levels of local government such as a county or parish councils and other agencies. In metropolitan counties where there's no county council, the joint boards are precepting authorities. There may be precepting authorities for special purposes which cover an area as small as a few streets or as large as an entire country.
These all set their precepts independently. Each of the levying authorities sets a precept (total amount) to be collected for households in their area. This is then divided by the number of
nominal Band D properties in the authority's area (county, district, national park, etc.) to reach the Band D amount.
Calculation
Each dwelling is allocated to one of eight bands coded by letters A to H (A to I in Wales) on the basis of its assumed capital value (as of
1 April 1991 in England and Scotland,
1 April 2003 in Wales). Newly constructed properties are also assigned a nominal 1991 (2003 for Wales) value. Each local authority sets a tax rate expressed as the annual levy on a Band D property inhabited by two liable adults. This decision automatically sets the amounts levied on all types of households and dwellings. The
nominal Band D property total is calculated by adding together the number of properties in each band and multiplying by the band ratio. So 100 Band D properties will count as 100
nominal Band D properties, whereas 100 Band C properties will only count as 89
nominal Band D properties.) Each collecting authority then adds together the Band D amounts for their area (or subdivisions of their area in the case, for example, of civil parish council precepts) to reach a total Band D council tax bill. To calculate the council tax for a particular property a ratio is then applied. A Band D property will pay the full amount, whereas a Band H property will pay twice that.
Revaluation
The government had planned to revalue all properties in England in 2007 (the first revaluations since 1993) but, in September 2005, it was announced that the revaluation in England would be postponed until "after the next election". At the same time, the terms of reference of the Lyons Inquiry were extended and the report date pushed out to December 2006 (subsequently extended to 2007). In Wales, tax bills based on the property revaluations done using 2003 prices were issued in 2005. Because of the surge in house prices over the late
1990s and early
2000s, more than a third of properties in Wales found themselves in a band higher than under the 1991 valuation. Some properties were moved up three or even four bands with consequent large increases in the amount of council tax demanded. Some properties were moved into new Band I at the top of the price range. Only 8% of properties were moved down in bands.
However, a large shift of properties between bands will cause a shift in the allocation of the charge between bands, and the tax levied for each particular band will then drop, as the total amount collected will remain the same for each authority (see 'calculation of amount' above). Between the wholesale revaluations, a major change to a property (such as an extension, or some major blight causing loss of value) can trigger a revaluation to a new estimate of the value the property would have reached if sold in 1991. If such a change would result in an increase in value, then re-banding will only take effect when the property is sold or otherwise transferred.
Current bands
In
England, the council tax bands are as follows :
| Band |
Value |
Ratio |
Ratio as % |
Average |
| A |
up to £40,000 |
6/9 |
67% |
£845 |
| B |
£40,001 to £52,000 |
7/9 |
78% |
£986 |
| C |
£52,001 to £68,000 |
8/9 |
89% |
£1,127 |
| D |
£68,001 to £88,000 |
9/9 |
100% |
£1,268 |
| E |
£88,001 to £120,000 |
11/9 |
122% |
£1,550 |
| F |
£120,001 to £160,000 |
13/9 |
144% |
£1,832 |
| G |
£160,001 to £320,000 |
15/9 |
167% |
£2,113 |
| H |
£320,001 and above |
18/9 |
200% |
£2,536 |
In
Wales, the bands were re-set on
1 April 2005 by the
National Assembly for Wales, based on 2003 valuations. In addition to revising the band boundaries upwards, an extra band was added.
| Band |
Value |
Pre-2005 value |
£676.16 |
? |
2008 |
| Westminster |
£681.68 |
? |
2008 |
| Kensington & Chelsea |
£1031.15 |
? |
2008 |
| Southwark |
£1,180.94 |
? |
2008 |
| Average |
£1268 |
100% |
2006 |
| Lambeth |
£1,187.23 |
? |
2008 |
| Hammersmith & Fulham |
£1,193.33 |
? |
2008 |
| Islington |
£1,219.40 |
? |
2008 |
| Camden |
£1,300.52 |
? |
2008 |
| Ealing |
£1,344.10 |
? |
2008 |
| Croydon |
£1357.64 |
? |
2008 |
| Hounslow |
£1394.53 |
? |
2008 |
| Richmond |
£1490.60 |
? |
2008 |
A full list of rates for England are available from the
Office of Deputy Prime Minister
.
Discounts
Individuals may apply to their local authority for council tax benefit, and subject to eligibility, will receive contributions to cover their tax liability. Payments are made direct to their council tax account, and no cash is paid to recipients. Local authorities receive funding from the
Department of Work and Pensions to both administer the council tax benefit system, and to cover payments. There may be further modifiers in certain circumstances, for example a discount for unoccupied property, a 25% discount for single occupants, or a total dispensation for diplomatic residences and residences completely occupied by students.
How Council Tax is spent
Although it's the only tax which is set by local government, the Council Tax contributes only a small proportion (25%, on average) of local government revenue. The majority comes from
central government grants and from
business rates which are collected centrally and redistributed to local authorities.
Local government provide services such as police, fire, recycling, refuse collection and removal, schools, leisure centres, park and ride schemes, parks and open spaces, street cleaning, subsidising of public transport, tourism, museums, social housing grants, housing and council tax benefits, environmental health and food safety in pubs, restaurants and shops, planning services, support for voluntary groups, meals on wheels, facilities for young people, adapting homes for disabled people, play centres for children, cctv installation, sports facilities, issuing taxi licences, flood defences, and many others.
A significant proportion of local government services are stipulated by central government in the form of statutory provision. Local councils are obliged by law to provide these services. The remainder of services are discretionary and are determined by the local council.
Criticism
Council Tax is criticised for perceived unfairness in not taking into account the ability to pay (see
regressive taxation). These critics point out that while the capital value of the property in which a person lives might give some indication of the relative wealth of the individual, it doesn't necessarily relate to current income. This argument however ignores the fact that those on low incomes can apply for council tax benefits which can significantly (or totally) reduce the amount the applicant pays.
Critics also claim that Council Tax has a disproportionate impact on renters, or those occupying part-owned social housing. They are paying tax according to the value of a property that they may not have been able to afford.
Equally, the tax isn't actually particularly proportionate even to property values. A band H property will pay at most three times as a band A, even though the value of the property may be ten or more times higher.
Whilst the tax may have regressive characteristics, supporters point out that there's a significant means tested benefit regime in place which offers rebates to those on low incomes. This has the effect of making the tax less regressive.
The
Liberal Democrats have proposed a system of local income tax to replace Council Tax, however when such a scheme, the
Scottish Service Tax, was proposed for Scotland, they opposed it. Critics of that suggestion have claimed that administering such a system independently of the national tax system would impose significant costs for government and business would significant erode the value gained from it as a source of local government income. Conversely, administering a local income tax as
part of the national tax system would leave local taxation entirely under the control of central government.
Another alternative scheme would be to allocate all funding directly from central government finances - already around 75% of local authority income is from central budgets. The biggest argument against this is that it removes fiscal independence from local government, making them mere service providers. However, since local government in the UK has no constitutional guarantee, and is shaped entirely by the whim of central government, some critics argue that local authorities can
never be independent of central government.
2007 media claims: "Millions may have overpaid"
An edition of the current affairs programme
Tonight with Trevor McDonald on
26 January 2007 investigated whether millions of homes had been placed in the wrong band in the original 1991 valuation. It was shown that the banding valuations were often done by 'second gear valuations', in other words valuations were often done by driving past homes and allocating bands via a cursory external valuation. The programme followed case studies of a system devised by the presenter
Martin Lewis, published on his website in October 2006, who had received thousands back in back payments after appealing their band allocations. This Council Tax Cashback system was said to have the potential to reach millions and received wide spread publicity, likely to encourage people to challenge the system. To date there has been no information published on how many have been successful in obtaining a reduced banding.
Notes and references
Further Information
Get more info on 'Council Tax'.
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