The government must sort out council tax

First Published by: The Guardian 

George Osborne's conference promise to freeze Council Tax for two years was clever and eye-catching pre-election politics: this most visible of taxes is the bill that many electors most resent.

Council tax is not an invention of this Labour administration, yet Labour will increasingly be blamed for its continued flaws unless it grasps the nettle and offers a better solution than the new Tory plan. 

The Osborne proposal is designed to win votes - but its flaw is that it does nothing to address the underlying problems of local council finance which must be addressed soon.

Having been wrong footed by the shadow chancellor last year over inheritance tax, Labour should this time ensure that its response is effective both as short-term politics, and as a sustainable policy strategy.

There is a superficial attractiveness to Osborne's suggested "deal" between a Conservative Treasury and those councils who are willing to participate; if efficiency savings are made locally to a certain threshold then the government will "match" these and enable a £200 lower Council Tax bill than might otherwise have been the case.

Everyone is in favour of efficiency savings – though we have heard this many times before. Vague plans to slash "advertising and consultancy budgets" are too unspecific. The risk for the Conservatives is the appearance of promising a tax cut, when in truth it will only happen in a hypothetical scenario if several hurdles are overcome.

Here, then, is a political liability that Labour could exploit - if the Tory plan turns out to have been a political gimmick, it may look calculating and stealthy to an unforgiving public mood.

Moreover, Osborne cannot guarantee the levels of council tax he seeks unless he also guarantees to keep the local government grant settlement at a high level. Otherwise, any Council Tax freeze may only occur at the expense of vital public services.

Placing a sticking plaster over the Council Tax problem just will not do. There are deeper inequities in local government finance that need to be solved. Yet the shadow of the poll tax means that governments are always tempted to leave it in the "too difficult to think about" category.

However proper council tax reform is possible to achieve - and in a politically popular way. A shift away from grant dependency and towards a broader basis for local revenues is the underlying reform most needed in order to modernise council finance.

Council Tax is based on ridiculously outdated 1991 property values. There should be an automatic biannual rolling revaluation independent of government which would help ensure that some residents do not overpay beyond the point justified by the true capital value of their property.

Council tax should also be made fairer as it applies across society: the narrow range of bands is still too regressive and a "fairness" reform would do more for those in less expensive properties.

Yet even the ditching of the hated poll tax for Council Tax in the 1990s showed that trying to shift to an objectively fairer system on a revenue neutral basis could still leave losers as well as winners.

What stalls a rational and fair reform is the fear that losers will feel the pain – with political consequences – while winners barely notice the gains that they quietly pocket.

But there is a way out of this conundrum.

Labour's reforms should therefore ensure there are no losers at all – and that everyone gains from the changes. How is this possible? New money needs to be identified for "transitional relief".

We would suggest that £3.5bn could be raised by asking those super-wealthy individuals lucky enough to be earning over £250,000 incomes to pay 10% more on every pound earned above the quarter-million level.

This would allow a very real £200 reduction in Council Tax bills for the average householder as a "reform discount". Any efficiency "bonuses" could drive this reduction even further.

This could trump the flimsier efforts offered at the Tory conference. Immediate pressures on household budgets would be alleviated – and without threatening local services. The key difference would be in also seizing the opportunity to manage the transition to a fair and sustainable council tax reform.

Labour needs to sort this problem out soon. If the government misses this opportunity, it risks facing a Conservative offer which, on the surface, may look very appealing to the electorate – even if its proposal leaves the headache of true reform to another generation.

READ WHAT:ERIC PICKLES ‘SECRETARY OF STATE’ SAYS ABOUT OVER-CHARGED COUNCIL TAX.

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