The Welsh Government is currently consulting on three possible changes to council tax in Wales. Although each proposal would improve national redistribution across Wales, none solve the underlying issues of council tax. They would not fix council tax’s lack of economic incentives or achieve revenue-neutrality for councils without large adjustments to grants from the Welsh Government.
Instead, Wales should pursue a fourth option for council tax reform that would provide better economic incentives, improve fairness by shifting council tax’s purpose from national redistribution to local redistribution, and achieve revenue-neutrality for all councils. As already set out in previous Centre for Cities research to advance fiscal devolution in the three biggest cities in England, this can be done by allowing councils in Wales to set proportional tax rates for each council tax band in combination with annual revaluations.1
In the first year, fiscal devolution of Welsh council tax in this manner could see 66 per cent of Wales gain an average council tax cut of almost £400, paid for by the wealthiest 33 per cent of Welsh households seeing an average increase of just under £700. Unlike other proposals, a majority of people in every borough would receive a tax cut from this proposal. As councils would be rewarded for growing their local economy – and by extension the Welsh economy – with a larger tax base, driving local prosperity and housebuilding would become key to financing local government services and delivering lower council tax bills in Wales.
Wales can do these reforms as regional inequality is relatively low and it has a rational system of local government. With the appropriate adjustments and political commitments England and Scotland could benefit too, but for Wales today there is a real opportunity to lead the rest of the United Kingdom in a progressive and pro-growth direction through fiscal devolution of council tax.