• Council tax reform could save over two thirds of households in England almost £500 on annual tax bill by giving local authorities powers to set fairer tax rates.
• Reforms would transform council tax from a regressive tax into a fairer one while keeping local authority revenues neutral.
• Centre for Cities says Government should reform and devolve council tax rate-setting powers over the course of current parliament.

Centre for Cities estimates 68 per cent of households in England could have their annual council tax bill reduced by £494, or more than the value of the average yearly broadband bill, if council taxes were set locally and at more progressive rates. A majority of households in every part of the country – both inside and outside of London and the Greater South East – would benefit from lower council tax bills under these reforms.

By making council tax more progressive, local authorities can reduce taxes for most households in a fiscally neutral way – without losing any tax revenue.

Under the current system, in some parts of England, residents in the cheapest properties pay council tax at rates ten or more times higher than taxpayers in the most expensive homes. For example, in Tameside, Greater Manchester, a property worth £100,000 is taxed at a rate of 1.39 per cent of its value while a property worth £5 million is taxed at 0.08 per cent of its value.

Centre for Cities sets out proposals to turn council tax from a regressive tax into a flat or progressive one in a new publication, ‘Devolution Solution: How fixing English local government will improve economic growth’.

Councils have no power to spread the tax burden progressively among local residents but plans to widen devolution to all of England offer the chance to change that.

Centre for Cities sets out the following steps towards devolution of rate-setting powers:

1. Annual revaluations of council tax bands. House prices increased 372 per cent nationally since they were last revalued in 1991 and bands need updating to reflect this.
2. Add three additional council tax bands to account for the changes in property values. An ‘A+’ band is added for properties worth less than £125,000, plus ‘I’ and ‘J’ bands for the properties worth above £2.5m or £5m.
3. Devolve rate-setting powers to local and combined authorities so that they can set tax rates that are proportionate to the local area. Bands would no longer be ‘anchored’ at band ‘D’ on a national level.

Such a system also improves the incentive for councils to build houses, as they will be able to fund services by growing their tax base.

Devolving tax-raising powers to local councils would bring the UK’s fiscal structure more in line with international peers. The UK has among the lowest shares of total tax take collected at a local level of any OECD nation, at five per cent – far lower than the rest of the G7.

Making the UK less of an outlier in an international context would also require redrawing local authority boundaries and devolving business rates and a portion of income tax too.

Andrew Carter, Chief Executive of Centre for Cities, said:

“Tackling the unfairness in the council tax system gives a majority of people a tax cut. This means much-needed savings for a majority of households in every part of England.

“Government should take the opportunity to give places more power over how taxes are collected locally at the same time as it plans to widen devolution of transport and budgeting powers.

“The fragmentation of local authorities and their lack of autonomy over their own revenues are major contributors to local government’s financial instability. These are issues affecting councils across the country, so we need a nationwide reset that neither hiking council tax on everyone nor extra central government grant can provide.”