01The Welsh council tax proposals are too narrow

At the outset, it is important to distinguish between the amount of resource in the local funding system, and the design of that funding system. Across the UK, there is a problem with a lack of resource in local finance, and more grant is probably necessary in the short and medium term just to keep core services running.

But neither pouring more central government grant funding into the system, nor hiking up council tax, is a solution to that second problem. Whatever the level of resource is, the design of the funding system matters as it determines the size, fairness, and economic incentives of the local tax base for households, businesses, and local government.

In collaboration with the IFS, the Welsh Government has set out three distinct revenue-neutral options for council tax reform in Wales and is currently consulting on them.2

Both the existing system of council tax and the proposals ‘anchor’ bills around Band D. Whatever each Band D bill is in each local authority, every other council tax bill in in each band is the same fixed fraction of that Band D bill across all of Wales, even though local house prices differ between council areas.

The analysis of the IFS presents these three options alongside a hypothetical ’12-band proportional’ benchmark: 3

  • Option A: a simple revaluation, as Wales previously delivered in 2003.
  • Option B: Option A, combined with changes to the anchoring of council tax around Band D, so that relative bills are cut/increased for all households below/above Band D.
  • Option C: Option B, combined with one additional band below Band A (‘A1’) and two above Band I (‘J’ and ‘K’).
  • Benchmark: Option C, but with bills for each band further adjusted so that the national tax rate for each band mirrors the national changes in property value between bands.

Each of these changes is increasingly progressive, and the debate in Wales over council tax is one of national redistribution between households – how much should council tax bills increase for some Welsh households to provide discounts for other Welsh households?

However, this perspective is too narrow. The problems with council tax go beyond questions of redistribution. If a wider perspective is taken – including what local taxation means for local and national economic growth – it becomes clear that a more comprehensive overhaul of council tax is required than any of those proposed.

Footnotes