COUNCIL TAX – ARE WE ALL IN IT TOGETHER?

First Published by: The Guardian 

With multimillionaires accused of salting cash in off-shore havens and generally not paying their way, Miles Brignall looks at the huge anomalies in council taxes

Fancy a six-bedroom, six-bathroom, house in one of London's smartest streets, a stone's throw from Buckingham Palace in the heart of Westminster? It might only have two reception rooms, but it is newly restored, comes with a fine roof terrace, and can be yours assuming you can stump up the £7.45m asking price.

Or maybe you live in the real world. The three-bed semi pictured above in Newark, Nottinghamshire has two reception rooms, like the house in Westminster. It has been extended and, according to the estate agent marketing it, it's in immaculate condition. The owners are hoping to get close to the asking price of £154,950.

But despite inhabiting two very different worlds, the owners of these two homes pay almost exactly the same in council tax – a little over £1,300 a year.

Over the next few weeks millions of householders across the UK will receive their Council Tax demands for the coming year and, amid spending cuts and tax rises, more and more people will be asking why the rich pay so little on their multimillion pound properties.

This week the Lib Dem business minister Vince Cable indicated his party was ready to scrap the 50p top rate of tax in exchange for a new mansion tax. "Basically, you get people with multimillion-pound properties paying exactly the same council tax as somebody in a three-bedroom semi," he said. "So the system doesn't work."

His party has proposed a higher levy on homes worth £2m and more. However, conservative MPs in London are already lining up to oppose such a tax.

Malcolm Rifkind, MP for Kensington and Chelsea, said 81% of properties affected would be in London, half of which are in his constituency. In an article this week he suggested the levy would be "arbitrary, disproportionate and unfair" and declared himself "resolutely opposed to such a tax".

But his arguments may fall on deaf ears in other parts of the country, which have suffered council tax rises at a time of flat or falling wages, and where the disparity between London and the rest of Britain looks less and less sustainable.

Westminster, with some of the world's most expensive real estate, imposes some of the UK's lowest council tax bills. No home in the borough is charged more than the band H charge of £1,375 a year. All properties that were worth more than £320,000 when the calculations were last made in 1990 are placed in the top band – irrespective of whether they are now worth £10m or more.

The residents of Newark, by contrast, pay some of the UK's highest council tax charges. The band B house above is charged at £1,311 a year. Someone living in a top band H house in the town pays £3,373 a year – almost two and a half times as much as in Westminster. Yet Nottinghamshire is an area with below national average incomes.

But this is by no means a problem limited to Nottinghamshire. Across Britain, many families who live in distinctly average homes are paying a month's income to their local authority in council tax.

Stevenage in Hertfordshire, 30 miles north of London, charges a family living in a mid-range band E house £1,778 a year. Compare that with those living in a band E home in Putney or Wimbledon in leafy (and very expensive) south-west London who are paying less than half that amount: £863 a year.

Those lucky enough to be living in one of the area's multimillion pound homes – around Wimbledon Common – pay the top rate of council tax of just £1,413 a year.

And it is not just the flagship Tory boroughs in London that are imposing relatively modest bills. Someone with a band E home in Southwark, a Labour-controlled borough in south London, pays £1,493 a year. In Newark a home in the same band attracts an annual £2,436.

A home in Dulwich village in Southwark, on sale for £4.35m has a council tax bill of £2,443. But a band F house in Bicester, near Oxford, which would sell for around £425,000, attracts a bill of £2,222.

A four-bed detached house in Newcastle-under-Lyme, a smart area near Stoke-on-Trent, is on the market for just under £400,000. It is in band F, and its owners will pay an annual council tax bill of £2,095 – slightly less than the tax the £4.4m Dulwich home attracts.

Council tax rates are set by local councils with local accountability, but the furore over low rates for millionaires – plus growing evidence that the rich also avoid paying stamp duty by registering assets offshore – has turned it into an issue that increasingly divides the coalition government.

Last week the Chartered Institute of Public Finance and Accountancy said 85% of local authorities will freeze council tax for this financial year. But because the authorities that are increasing their charges also tend to be the bigger districts with more households, it warns that 43% of homes will see some increase for 2012-13. 

The Department for Communities and Local Government has urged councils to freeze council tax this year and offered them funding to do so. Of those authorities increasing tax, none are increasing by more than 4%, it says.

Meanwhile, this year's council tax bills are about to start going out to homes across the country. When yours arrives will it be closer to Westminster or Newark?

Have your say: 

Are you paying too much Council Tax?