At last a Labour government has found itself a wealth tax – or thinks it has. Its proposed adjustment to council tax in England is crude and possibly cruel, and does nothing to help with Rachel Reeves’s “missing £40bn”. It is designed merely to shift money from rich regions to poor ones, and thus correct an imbalance in Britain’s regional wealth. As such it is overdue and welcome.
British budgetary policy used to be classy. It was top hats and secrets and standing room only in parliament. Now it comprises a scruffy marathon of leaks, squeaks and denials. Lobbies form, rebels threaten and ministers pledge and unpledge.
The local government secretary, Angela Rayner, has sought advice on a scheme to adjust the regional burden of council tax, unreformed since it replaced poll tax in 1993. The change is aimed at correcting its most severe defect: that poor people pay more in tax than in fairness they should, and rich people pay less. Government grants do not compensate councils accordingly.
Thus at its crudest, the system means that a band H property in Hartlepool, County Durham, pays £3,000 a year more in council tax than a multimillion-pound townhouse in Westminster. On my own two-bedroom house in Wales, the basic council tax is £3,862. On my London house, many times its value, the tax going to the local borough is half that, just £1,850. Ever since this tax was introduced 30 years ago no government minister has dared order a national revaluation of properties, despite wild leaps in house prices. Nor has there been any widening of tax bands. A revaluation due in 2005 was ditched by the then local government secretary, David Miliband, who admitted it was done out of sheer fear.
Keir Starmer has no excuse for letting this continue. He has a big majority. Local government finance is in chaos. Many councils face bankruptcy. Services are closing everywhere, especially discretionary ones such as youth clubs, childcare and museums. He is clearly minded to do something, but he appears terrified of radicalism. He simply wants to tilt central grants more towards poorer councils at the expense of rich ones, and leave the system the same.
A study of the plan by the Institute for Fiscal Studies (IFS) suggests some bizarre consequences. The central government grant to local councils is to be reallocated through a morass of algorithms assessing local needs. Central grants would be slashed for 186 councils and increased for 161. Thirty councils would see their grants cut by more than 10% in the next three years, and some inner London boroughs by as much as 25%.
The maths is beyond comprehension. The south-east does badly, which is to be expected. Yorkshire, Manchester and, for some reason, the East Midlands do well. Norwich, Crawley and indeed Enfield and Hillingdon also fare well. Suffolk and Leicestershire are losers, while Slough and Harlow are winners. Indeed, the more you look down the list, the more you wonder how officials worked it out, beavering away in their Whitehall attic. It seems suspiciously tilted to areas gained by Reform UK.
The change would go some way to meeting Boris Johnson’s bid to “level up” regional Britain, though he did little levelling himself beyond inventing the phrase. He rightly drew attention to the fact that the UK’s disparity in disposable income between rich and poor, south and north, is now statistically wider than that of any country in the EU. Regional poverty impedes productivity, investment and national growth.
As for council tax, even when he was mayor of London, Johnson protested at the gap between what “a Russian oligarch is paying on his stuccoed schloss in Kensington” and “what such a gentleman might be asked to pay in Paris or New York”. At least if the oligarch had a second home in Cornwall or Wales, he might now be hit with a council tax surcharge that could reach up to £10,000 a year.
In other words, Starmer and Rayner may be hoping to reverse some of the disparity between councils in rich and poor parts of the country. They will hardly be reversing it between rich and poor individuals. Taxpayers in rich areas may see their bills rise steeply, perhaps even by more than the normal limit of 5%. But that is the nearest this reform gets to a mansion tax.
What Rayner appears to lack the guts to do is tackle the central unfairness built into the council tax. The time is surely overdue to revise the wildly out-of-date valuations of taxable properties, and the wildly limited range of bands by which the tax is assessed. It is absurd for the richest houses to be charged just three times the poorest. A two-bedroom flat should not be paying only a third of what a sumptuous palace pays. A clear basis for revaluation is outlined by the IFS. It should be adopted.
The government is tinkering with a broken wheel. It is gesturing in the direction of levelling up, but merely by reforming a centralist device – a grant. It should dare to be leftwing and go for the jugular. Houses should be taxed for their proper value. If you cannot call it a mansion tax, call it what it is: a property tax. But make sure it’s a proper one.