04Every part of Wales could see council tax cuts from fiscal devolution

Crucially, fiscal devolution of council tax is scalable. It’s not just Cardiff that benefits – the same effects can be felt in every part of Wales including very different local economies.

Figures 2 and 3 both show the same effects of fiscal devolution of council tax in Figure 1, for Monmouthshire and Merthyr Tydfil, an affluent rural authority and a poorer ex-mining community in the Valleys respectively. Both show the same patterns as Cardiff, but adapted to local conditions.

Monmouthshire has a larger tax base than Cardiff and more dwellings in higher bands than the rest of Wales. A reasonable worry from residents is therefore that council tax reforms might have a disproportionate impact on Monmouthshire, and the Welsh Government’s proposals face a tension between mitigating this impact and redistributing across Wales.

But this is not a problem under fiscal devolution of council tax. As Monmouthshire’s tax base is larger, the tax rates can be lowered, including for residents of properties that are expensive by Welsh standards but average by local standards, while still achieving local revenue-neutrality. After revaluation, 67 per cent of households in Monmouthshire get an average council tax cut of £311 from fiscal devolution, while the average council tax increase for the remaining 33 per cent of households is £460.

In contrast, as Merthyr Tydfil has a much smaller tax base, it has the opposite worry – that council tax may have to increase for most residents just to sustain revenue-neutrality. No dwellings are in the top H and I bands, and 61 per cent of dwellings after revaluation are in Bands A and B.

But again, the flexibility of council tax under fiscal devolution allows adaptation, even in a less affluent authority. A broader and more progressive tax base ensures most people in Merthyr Tydfil pay lower rates of council tax without others facing extortionate increases. After revaluation, 62 per cent of households get an average council tax cut of £466 under fiscal devolution of council tax, while 38 per cent have an average council tax increase of £765.

In fact, most people in every local authority in Wales would be able to expect a council tax cut from Centre for Cities’ proposals, even after accounting for the effects of a revaluation. Figure 4 shows that 66 per cent of Welsh households could expect an average tax cut of £393, paid for by 33 per cent of households in each local authority’s highest banded properties seeing an average council tax increase of £696. These estimates are illustrations of the scale of the changes rather than predictions – the actual figures would depend on how local authorities decide to use their freedom to set council taxes.

Under this approach to council tax, every part of Wales would receive similar growth incentives towards housebuilding and the local tax base. Altogether, as each council pursues growth instead of tax increases to fund services, the national tax base of Wales would expand, providing resources at the national level to again either fund services or keep taxes low.