Council Tax in Wales: Time for Reform?

Is the value of the house you live in today a good proxy for deciding how much you should additionally contribute to pay for local services? Although clearly fairer than the poll tax, many would argue that council tax is still somewhat regressive and arbitrary. But are the alternatives better, or politically possible?

Consider the distribution of the levy: the poorest in Wales pay over 7% of their income on council tax, while the richest spend roughly 3% of their income on council tax (IFS 2020). The property valuation on which the tax is based is out of date: a rise in property values means the tax bands now ‘bear little relation to current reality’ (IFS 2020).

In 2005, Welsh Labour pushed on with council tax revaluation, based on values in 2003, and the introduction of an extra band at the top of the valuations, despite opposition from all the other parties at the Senedd. There were claims it targeted ‘strivers’ who had invested in their homes by adding conservatories, and penalised pensioners on low incomes and bigger homes.

The Welsh Conservatives claimed that additional higher bands were a ‘Mansion Tax’, although that argument wasn’t very relevant in Wales – where the average property price in 2005 was £143K and the new higher band was £420K plus.

At the time, Plaid Cymru was against revaluation and opposed to “the unfair, property-based council tax” and called instead for a form of local income tax. Adam Price even sponsored an Early Day Motion whilst a MP in Westminster calling on the Secretary of State for Wales to press the Welsh Government to stop the revaluation process.

The revaluation was achieved, driven through by Sue Essex, but not without a political firestorm played out in the UK press. Which is why in England, council tax is still based on evaluations in 1991. The longer evaluations are postponed, however, the increasingly unfair council tax becomes and the more painful any change will be.

If council tax were scrapped, what would replace it? A tax on land would be felt by farmers and those with larger gardens or smallholdings. How do you fairly work out the value of your land if you live in a flat in Butetown or farm half of Powys? There is also the question of who to tax – currently, renters often pick up the bill on homes they do not profit from. A UK Labour paper, Land for the Many, proposed that council tax be replaced with a progressive property tax payable by owners, not tenants.

Do we get rid of non-domestic rates and council tax and tax individuals and businesses in the same way? Do we simply increase the Revenue Support Grant – the larger proportion of council budgets – which comes from general taxation and the block grant.

Welsh Labour and Plaid Cymru have both committed to reform or review of the council tax system. In its 2021 manifesto, Plaid Cymru set out two stages of change: revaluation of council tax bands and increasing the number of bands at the higher end of valuations; and then reform of council tax itself through the introduction of a Single Land and Property Tax levied at a flat rate on owners. Agricultural land, which makes up 88% of Wales, would be exempt from this tax. This is certainly a change from their position during the last revaluation in 2005.

Last year the Labour Welsh Government commissioned research on the feasibility of a local tax based on incomes in Wales, which would replace council tax. It would represent a major shift to taxation of income over property, and followed on from the Welsh Government’s commitment in the Taking Wales Forward programme to review council tax ‘to make it fairer’ for those on low and moderate incomes.

In its 2021 Senedd manifesto, the party does not commit to implementing these findings and instead pledges to reform council tax ‘to ensure a fairer system for all’. This rather vague commitment may involve revaluation rather than wholesale change, and Mark Drakeford has said he is attracted to rolling revaluation, which would require a register that is kept up to date all the time.

Have they bottled it? Maybe we are in the territory of the politics of the possible? Labour know that they cannot introduce a controversial reform to replace council tax over the next five years without a majority, and don’t feel the need to step into another UK-wide firestorm just ahead of the next General Election.

The Welsh Conservative Party has pledged to freeze council tax for two years and introduce local referenda to potentially veto increases over 5%, but has steered clear from calling for reform of the tax and has ruled out revaluation.

The controversy of the revaluation in 2005 has seen successive UK governments reluctant to act on council tax valuations, with a revaluation called off in 2010 over concerns about what impact it would have on voters’ bills (or more accurately, on voters’ votes).

More than fifteen years since Wales’ controversial revaluation, that memory will also make it difficult for any party – if the polls prove correct and a coalition is arranged – to push through uncomfortable reform of the system. The next Welsh Government may also need to reconsider the formula used to allocate direct funding to local authorities. In for a penny, in for a pound?