COUNCIL TAX: THE NEW BATTLEFIELD

First Published by: This is Money

RIOTING over the poll tax, officially the community charge, shocked the nation 15 years ago.

It fatally damaged Margaret Thatcher's premiership, leading to her resignation. There are ominous parallels today as anger over soaring Council Tax bills emerges as a major factor at the General Election. Financial Mail looks at the tax that won't stop rising.

WITH thousands of others, Chris and Kate Wheal marched in protest against the poll tax at a rally in London on March 31, 1990. But the couple had the frightening experience of seeing a peaceful demonstration suddenly explode into violence.

Chris says: 'We were near one corner of Trafalgar Square when there was a mounted police charge. Kate was swept away by the crowd and I was left on a wall, watching fighting erupt all around me.' Though neither was injured, arrested or caught up in the violence, that day still leaves a vivid impression on the Wheals.

'This was before mobile phones and it took hours to find each other again,' says Chris. 'We went back to the square the next morning and it was like a battlefield.' Fifteen years on, Chris and Kate, both now 39, have children Joe, 10, and Molly, 7, and together run a contract publishing business. Ominously, they can see history repeating itself, with Council Tax becoming a running sore for the Government.

Chris says: 'We wanted to protest because the poll tax was unfair. It took no account of ability to pay. The situation is similar today with a rising tax that is not linked to income.' This year, the Wheals will pay £1,199 in Council Tax for their band D home in Lewisham, south London, up 5% on £1,141 last year.

Council Tax is set by local authorities to pay for services. On the average band D home in England, it was £688 when Labour came to office in 1997. It has soared to £1,214 for the year that started on Friday - a 76% increase. Inflation over the same period is just over 20 per cent. In Scotland, Council Tax is up 3.9% this year, with the average band D home paying £1,094.

Wales, too, has seen average bills rise, with added pain coming from a revaluation of property that took effect last week. That exercise has seen about one in three homes move into a higher band. And that is just the start. A similar revaluation is taking place in England over the next two years, with all properties being slotted into new Council Tax bands based on their value last Friday, April 1. Bills based on these new bands will be dropping on doormats in 2007, though details of the revaluation have yet to be decided.

There are two main criticisms of Council Tax. The first is that it is a crude measure of wealth. Properties are split into eight bands (nine in Wales) based on value in 1991. Bills for the lowest band A are two-thirds of the middle band D. Bills for the top band H are twice those of band D. This means that a stately home owner pays only three times as much as a person in a tiny flat in the same local authority area. Yet the property might be worth 100 times as much.

The second objection is more fundamental. The tax takes little account of ability to pay. There is a 25% discount if only one person lives in the house and there are automatic concessions for students and those with disabilities. Other than those exceptions, everyone must pay unless they qualify for means-tested benefits. Targeting Council Tax benefits to the poorest households. The Chancellor announced a £200 payment in last month's Budget to help those aged over 65 with Council Tax. The one-off benefit will be paid later this year. Meanwhile, the Government is pressing on with its plan to revalue all homes in England, taking account of price rises since 1991.

Though politicians say the total tax take will not increase as a result, the balance of where the tax comes from will alter. Areas where property prices have risen faster than the national average will be saddled with a bigger share. Nationwide building society estimates that the average home has increased in price 2.8 times over the past 14 years, from £54,547 to £153,778. Regions of higher growth include London (3.1 times), the South-East and South-West (both 2.9 times).

The West Midlands, Yorkshire and Humberside have all seen slower growth, with the average house increasing 2.6 times in value. One study from a Labour-linked think tank, the New Policy Institute, says that revaluation should go further. It wants to split Council Tax into 13 bands to reflect more accurately the wide range of differing property values. The top band would pay ten times the tax of the bottom band.

However, the Government has also commissioned a wide-ranging review of all local government finance by academic Sir Michael Lyons. His report, due and will consider a range of alternatives, including reform of council tax. The Liberal Democrats are the only main party to have made a firm promise to scrap Council Tax. They propose instead a local income tax, which would be collected by the Inland Revenue along with income tax. Each council would set its own rate, based on Inland Revenue estimates of how much income its residents had.

Chris Wheal says: 'I think we would be significantly better off under a local income tax and so would many others who are self-employed. But I would want to be sure that all the savings were being passed on to the council. 'As a school governor, I know how stretched local authorities are and would favour a system that gets more money to them, not less.'

THEY are neither poor nor wealthy, with a modest private pension to boost what they receive from the state. But Arthur and Gladys Brace have seen Council Tax soar way ahead of any pension increase they could dream of. They married early in the Second World War before Arthur, a Spitfire pilot, was posted to Africa by the RAF. Both 83, they live in Westonsuper-Mare, Somerset, and will pay £1,081 in Council Tax on their band C flat this year, an increase of 4.7%.

Arthur's small occupational pension comes from his career in the ceramics industry. He says: 'My private pension goes up three per cent a year and the state pension rises very slowly. But Council Tax has increased in leaps and bounds and we have to think very hard about managing our money.'

Politicians have latched on to Council Tax as a key election issue. The Conservatives have pledged a discount, regardless of income, for the over-65s. It would halve bills up to a maximum discount of £500 a year. They estimate 3.8m homes would gain. Council Tax itself would remain. 'I don't want to look a gift horse in the mouth,' says Arthur, 'but this Tory move is another election sop. It gets away from the idea that we should have a decent state pension, not a random bunch of handouts.'

RISES started to bite in Wales last week after the revaluation in Council Tax bands. Bills there are based on nine new Council Tax bands, replacing the original eight. Each home has been re-valued over the past two years, reflecting changes in house values since 1991. About one third of homes have moved up a band, with a few jumping two or more bands. Eight per cent of homes drop to a lower band. The increase in bills for some homes is so dramatic that the Welsh Assembly has had to find extra money to soften the blow. This means that Council Tax increases will be limited to one band a year, rather than being imposed all in one go.

Retired head teacher Maureen Jenner's bill rises by 23% this year. Maureen, 68, a widow, lives in Ferryside, near Carmarthen. Her house has been re-valued and moved from band E to F. Her bill this year, after allowing for a 25% discount for being the sole occupant, is £988.50. Last year, she paid £803.25. The extra £3.56 a week more than wipes out the £2.45 rise in the basic state pension.

Maureen says: 'I am not wealthy. I moved to this house because it had a big garden and at the time I had three dogs.' She still looks after crossbreed Kim plus her cat Kitty pus. Like other pensioners of 65 or over, Maureen will receive a one-off payment of £200 from the Government this year to help with Council Tax. But she is dismissive. 'Special payments put pensioners apart from the community,' she says. 'We don't want special treatment, just a tax that is fair and is related to ability to pay.'

READ WHAT: ERIC PICKLES ‘SECRETARY OFSTATE’ SAYS ABOUT OVER-CHARGED COUNCIL TAX  

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