Why Council Tax Reform Is Fraught With Difficulty
6 min read
New analysis shows why council tax reform is such a hard task for the government as it faces widespread calls for the system to be updated.
Labour MPs like Hartlepool's Jonathan Brash, who set up the All-Party Parliamentary Group for Council Tax Reform, have urged the Keir Starmer administration to use its large parliamentary majority to overhaul how council tax is calculated.
As things stand, council tax is based on the value of properties in April 1991, or for homes built since then, their value according to the standards and economic geography of 1991. Critics argue this means that the system today is outdated and unfair, as the council tax paid by many households is out of step with the actual value of their properties.
The Institute for Fiscal Studies (IFS) think tank recently predicted that revaluing council tax to match property values would result in a fall in average bills across most of the North and Midlands, but increases in average bills in London and much of the Home Counties.
Ahead of the Budget later this month, The Telegraph reported last weekend that Chancellor Rachel Reeves is “said to be looking at” doubling council tax on the million homes in bands G and H in England – but, crucially, without any revaluation of homes.
Instead, council tax bands would still be based on the value of properties 34 years ago.
Analysis by PoliticsHome has found that the biggest impact of this change, if implemented, would be in 'old money' parts of England, where housing was relatively expensive nearly 35 years ago, rather than areas that have since gentrified.
Traditionally expensive areas of London and the South East would be most affected. Analysis of parliamentary constituency data from the Valuation Office Agency shows that 40 per cent of all homes in the Cities of London and Westminster seat are in council tax bands G and H, exposing them to the reported proposal – the highest percentage in any constituency.
Kensington and Bayswater would see 36 per cent of homes affected, followed by 30 per cent in Chelsea and Fulham and 29 per cent in Chesham and Amersham. While the three most affected seats were all gained by Labour at the election, around half of the 30 hardest hit seats are Tory.
Because the higher tax rates would largely miss newly gentrified parts of the country, they would hit fewer pensioners who bought their homes for cheap amounts decades ago, or tenants of large houses of multiple occupation.
But the flip side is that it would leave soaring property wealth in gentrified London largely untouched, and open up huge disparities and distortions between similarly expensive homes in different parts of the country.
London’s East Ham constituency and Denton and Gorton in Greater Manchester both have fewer than 20 homes in the top two council tax bands, based on April 1991 valuations. This is less than 0.03 per cent of their total housing stock, the lowest in England.
But London’s subsequent house price inflation means the average home in East Ham is now worth £430,000, compared to £230,000 in Denton and Gorton, according to data from the Office for National Statistics.
Even more dramatic is the case of three constituencies, each with around 30 homes in bands G and H based on April 1991 values – 0.06 per cent of their housing stock. But three and a half decades later, the average home in Sheffield Brightside and Hillsborough is now worth £160,000, whereas in Bristol East it’s worth £335,750 and in Walthamstow, east London – where just 30 homes would be subject to doubled council tax on valuable properties – the average home is now worth £522,000.
“That’s madness,” tax expert Dan Neidle of Tax Policy Associates told PoliticsHome.
The change reportedly under consideration may have political appeal for the government, as leaving some properties relatively under-taxed may be deemed an easier sell to voters than pensioners and tenants in 'new money' areas seeing major increases in their council tax bills. But the outcomes would be perverse. As Neidle explained, if the government did decide to double council tax rates for bands G and H without broader revaulation, “then it spectacularly fails to work out”.
For example, the hundredth most expensive home in East Ham would likely fall into Newham’s council tax band E, attracting a council tax bill of £2,268.39 in 2025/26. Meanwhile, in Tatton, which mostly lies in the Cheshire East local authority area, the hundredth most expensive home would fall under band H, meaning a council tax bill of £4,508.14. But if band H rates are doubled, this would become £9,016.28 – four times higher than in East Ham, even though homes in East Ham are now worth more than in Tatton.
The average home in Walthamstow is now worth more than in Mid Buckinghamshire, where almost one in five homes would see their council tax double, compared to 0.06 per cent in Walthamstow. The hundredth most expensive home in Walthamstow faces a band E council tax bill of £2,783.79. In Mid Buckinghamshire, the 7,000th most expensive home would likely face a doubled band G bill of around £8,000.
The low existing council tax rates in parts of London also mean the superrich occupants of multimillion-pound homes would get off relatively lightly, even if they fell into band G or H, while households elsewhere on more modest means would be significantly impacted.
In Westminster local authority, council tax bills for a band H property – now likely worth at least £2m – would double to £4,068.72. Meanwhile, around 1,230 band G properties in Liverpool Garston constituency would see their council tax double to £8,488.14.
“We're talking about an amount of money which is significant for plausible owners of band G houses,” said Neidle. “They’re people earning a hundred grand, potentially a couple on a bit more than a hundred grand. So we're not talking about the uber wealthy here. You've got to compare any amount of council tax to their post-tax income of sixty-something grand.”
He said such large council tax bills would lead to lower house prices in affected areas, but warned this could stall planned housing developments by rendering them unprofitable.
England has nearly six times as many homes in band G as in band H. “All the money is in G and lower,” Neidle said. “Unless you raise a preposterous amount at a high rate on [band] H’s, then you just don't raise proper money from it.”
The IFS denied The Telegraph’s claim that it was behind the proposal to double the higher council tax bands, telling PoliticsHome that it was just one suggestion in its Green Budget this year. The IFS Green Budget explicitly describes the policy as “an illustration (but not a recommendation)”.
The Treasury did not respond to a request for comment.
