House of Commons - Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions

Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Ninth Report

4 Council Tax - Is it a viable and adequate source of revenue

93. The council tax is a local tax set by individual local authorities to help pay for local services. There is normally one bill per dwelling and the charge is based on the relative value of property. The council tax was introduced in England and Wales in April 1993 and replaced the community charge (or "poll tax"), which had in turn replaced domestic rates in April 1990. According to the ODPM, the tax "has been widely accepted until recently".[111] Calls for its reform or abolition grew, however, following very large increases in council tax bills in 2003-04. The following chart shows the average percentage increase in band D bills - the average council tax band - since its introduction. In most years average bills have increased by around 6%; the average increase in 2003-04 was more than double that, at 12.9%.

Advantages of council tax

94. The Committee received much evidence about the advantages of council tax as a form of local taxation. The Audit Commission pointed out that it was simple to calculate; transparent; easy to collect; and as the principle form of property tax that it widened the overall national tax base.[112] The Local Government Information Unit added that it was hard to avoid and provided a stable and predictable income for local authorities.[113] Many of the organisations submitting evidence to the inquiry reiterated these points and pointed out that the council tax had also relatively low collection costs, high yield[114] and a secure asset base.[115] These advantages are common to most property taxes which may explain why property taxes are such a popular form of local taxation in other countries.

95. Professor Bramley told the Committee:

"[…] I think taxes on fixed property are […] appropriate for assignment to local government level. They are the first choice for a local tax for lots of reasons that you can easily see. I think broadly the experience of the council tax is that it has been successful, it has worked well compared with some of the predecessors and alternatives that have been considered, it has been less controversial, more workable"

The Economic Secretary to the Treasury told the Committee that:

"As the Chancellor has made clear, he sees a property tax as a fair form of tax as part of the overall tax system and the council tax is the principal form of property tax which we have in this country."[116]

96. Many of the organisations that highlighted the advantages of council tax were as keen to point out that it needed reform and to suggest changes. The Local Government Information Unit said that at present it was unsustainable and needed radical reform before it could be said to be sustainable.[117] The New Policy Institute argued that there would be similar dissatisfaction with any other tax that had increased by the same amount.[118] The Audit Commission said that it needed reform to increase its viability.[119] Reform of the council tax is considered later in more detail.

Disadvantages of council tax

97. Critics of the council tax point out that it is regressive (council tax liability as a proportion of income reduces at higher income levels), it is not a buoyant tax (revenues do not automatically increase with economic growth), it is inadequate on its own and that council tax benefit provides an insufficient safety net. Those organisations with a more positive view of council tax tended to say that its problems have been magnified by the amount of income that it has to produce. The Association of London Government, for example, said that it has been called on to bear more than it can effectively sustain and recent large increases have highlighted its weaknesses.[120]

98. Despite these problems most of those who raised these criticisms want council tax, or some form of property tax at the very least, retained. Only a small minority of the evidence the Committee received called for the complete abolition of the council tax. This echoes the findings of the Balance of Funding Review's public consultation:

"Many responses to the Review's public consultation last year said that there were serious problems with council tax. But most of them suggested that council tax could be reformed rather than abolished. This is a tax that has been widely accepted until recently. From an international perspective, almost all countries have a local tax on domestic property. It has advantages - for example, it is relatively easy to understand and to collect."[121]

99. Among those who did want council tax abolished was the Leader of Somerset County Council who told the Committee:

"All the surveys that we have done out in the market place and door to door have come in overwhelmingly in favour of the abolition of council tax and the introduction of a local income tax. People can see that if they have got a low income then they pay very little, and if they have got a high income then they pay more. I think that is predicated towards people's ability to pay, and I think that is fair and people can understand that."[122]

Mr Webb, Chairman of the Surrey Tax Action Group said the Balance of Funding Review:

"[…] should conclude that council tax should be abolished, that the raising of revenue should be separated from the accounting for spending, that local authorities should be financed from central taxes."[123]

Ms Melsom from the "IsItFair" Campaign said:

"[…] we believe that the fairest and simplest way for each individual to contribute towards the cost of public services is to use the existing income tax and VAT systems that are established and understood and accepted."[124]

100. The Committee believes that the council tax has a number of advantages as a local tax, particularly its ease of collection, transparency and the fact that it is difficult to avoid. Its disadvantages are significant, although some could be overcome or reduced with reform. Many of its failings, especially its regressive nature, are magnified by the increased burden it has to bear. We are not convinced that council tax on its own is an adequate source of local income for local authorities. Nor, however, are we convinced that abolishing council tax - with all the associated disruption - would result in a better outcome for local authorities or local taxpayers. We recommend that council tax should be retained, provided it and council tax benefit are reformed in line with our other recommendations in this report in order to address the shortcomings of the current arrangements. In addition, local authorities need greater freedom in the use of their other sources of revenue to ensure that council tax payers are not exposed as at present to large increases in annual bills.

Revaluation

101. The Local Government Act 2003 set 1 April 2007 as the date for the council tax revaluation to be completed and for any resultant changes to council tax bills to come into effect. At present dwellings are placed into one of eight bands based on their assessed capital value at 1 April 1991. The present system of local government finance means that revaluation itself would not affect the total amount of money raised in council tax or average bills for the country as a whole. These are a function of government funding and local spending decisions. Revaluation will result in changes in council tax bills at a local level where house price increases between 1991 and 2005 diverge from the national average.

102. This first domestic revaluation is a highly significant event for council tax, coming as it does at a time when public confidence in council tax is low. If handled poorly it may further reduce public confidence and introduce additional problems for the council tax that make it unsustainable.

103. Since 1991 house prices have not changed uniformly across the country, or even within areas. If prices rise disproportionately in one local authority then its properties will move up the banding scale, equalisation grant is cut and average bills will increase, other things being equal. The chart below shows changes in house prices, by region between 1991 and 2002. There are very clear and substantial differences between regions; these will be even greater between local authorities across England.

104. In recent years the difference in house prices at an intra-regional level has been lessening, and more recent data suggests that this trend is continuing.[125] However, the difference between regions remains acute. The Corporate Director (Treasury) from Somerset County Council told us:

"The figures we have seen are that nationally revaluation will uplift the tax base by about 15%. The South West uplift will be 18% […] So that 3% uplift results in a 10% increase in council tax, and when you think where that is going to fall, it is going to fall on the people who can least afford to pay it. This will be impacted, as you say, by people in the Bs, the Cs and the Ds [council tax bands], the nearly poor, the people who can least afford it, and actually council tax revaluation will not survive, council tax will not survive a simple uplift like that, something else has to be done to neutralise the impact of that."[126]

105. The opposite view was expressed (from the perspective of a low house price inflation area) by Mr Woods from Newcastle City Council:

"We think the impact of revaluation on the North East would be to bring benefits to the North East. Property values now have become out of date and the relationship between property values and the national increase in property values is that there has been a lower increase in the North East, although it has been catching up in the last couple of years very substantially. We would expect there to be an additional level of funding provided to the North East through resource equalisation in 2007, after revaluation, to reflect properly the difference in property prices at that point. […] The poorer areas over a period of time then tend to lose out to wealthier areas, in terms of property values and in terms of any other form of taxation, be it income tax, local government tax or property tax. There is a gradual losing out over that period which occasionally gets corrected, and when that is done periodically it is a very visible shift of money from several parts of the country to the others and it becomes a problem at that point in time."[127]

106. Evidence from the Association of London Government estimated that straightforward revaluation would cost its members over £320 million in grant and introduce significant inequality across the country.[128]

107. Organisations without a specific local focus also pointed out the regional inequalities that would occur if revaluation happened without any reform. The New Policy Institute said:

"The principle we think is important is that on average people on similar incomes in similar houses pay similar amounts of council tax no matter where they live geographically. At the moment that happens to be true. The problem with the revaluation is that it will up all the London house prices enormously and people in London will find themselves paying very much higher levels of council tax than people in other parts of the country, so it is because London house price inflation has been so high."[129]

108. The New Policy Institute gave more detail on inequalities between areas and reform in general in research for the Balance of Funding Review.[130] This found that there would be a transfer of central government resources, in very general terms, from South to North. Average council tax bills would rise where house prices have increased most and vice versa. This means that people in low band homes in the South will face large increases and pay more than those on similar incomes in other parts of the country. In addition, within regions current Band A properties in the North do not benefit as much because they are already in the bottom band. Similarly current band H properties in the South and London do not lose out as much as other properties in these areas because they cannot be moved to a higher band.

109. This analysis was supported by evidence from other organisations. The Local Government Information Unit said that "revaluation will make the problems with council tax worse; the more expensive properties in low inflation areas will gain most, while less expensive properties in high inflation areas will lose the most".[131] According to the Audit Commission 'revaluation remains a thorny issue' and could lead to significant and relatively arbitrary changes in the amount of tax people pay.[132] Evidence from SIGOMA called for more regular revaluations,[133] while Wandsworth Borough Council called for the upcoming revaluation to be abandoned.[134]

110. Simple revaluation, without any changes to the system, risks causing considerable turbulence for the council tax and at the least will result in greater regional inequalities related to council tax. It is also clear that a gap between domestic valuations of 14 years is unacceptably long. Options for reform are outlined in the following section.

Reform

111. Reform of the council tax system is clearly vital to its sustainability. Broadly speaking the evidence on reform falls into three areas: changes to the present national banding system; regional banding; and reforms of the council tax benefit system to make council tax more related to ability to pay.

National Banding System

112. We received evidence on the number of bands and their multipliers. The current eight bands, associated 1991 house prices and multipliers (how each band's bill compares to band D) are given below:

The New Policy Institute argued:

"We think you need to increase the progressivity within the tax and that the way you do that is to attend to both the bottom of the current band A and also to the top, by which we mean G and H (G is obviously a double band). In some sense the surprising conclusion that we have come to in our research is that the middle of the council tax bands B, C through to F are for the most part there, they are regular, there is a logic to them and, most importantly, although there are lots of caveats attached to the arithmetic, it does look like council tax in those bands moves more or less in line with average household incomes. There is obviously a huge variation in the incomes of people in band B or band C, but in some sense we think you can keep the heart of the tax as it is and lower the tax at the bottom, following the same proportions as you have in the middle band and increasing it at the top again following the same proportions as you have at the minute."[135]

Their written submission added more detail:

"Within the middle bands, if a house is worth twice as much as another, it pays about 40% more in council tax. But that is not true either at the bottom, where a £20,000 home pays the same as a £40,000 one, or at the top, where a £1m house pays the same as £2m one.

"To do this, we suggest that:

- Change is needed at both the top and bottom of the banding structure, to increase the number of bands by splitting band A into 2 or more bands, by splitting band G into 2 bands and by splitting band H into as many bands as necessary. Throughout bands B to F, the most valuable property in the band is worth around a third more than the least valuable. A, G and H need splitting because the range they cover is much greater than this: thus in each of A and H, the top is worth at least four times the bottom while in G the top is worth twice the bottom. By contrast, apart from the uplifting necessary to take account of house price inflation since 1991, bands B through F can be left alone.

- Multipliers for the new, split bands can be set so as to maintain the progression in the multipliers currently to be found in bands B to F. Applying the current multiplier structure with the new banding structure would produce a system in which those in the very top band could be paying perhaps 10 times as much as those in the very bottom band, compared with just 3 times as much at the moment. The net result is that, nationally and on average, the ratio of council tax to average household income would be roughly the same across all the bands."[136]

113. The thrust of these proposals received support from the Local Government Association, Local Government Information Unit, SIGOMA and the Audit Commission. The Audit Commission also added that any reform should be implemented at the same time as revaluation, but will inevitably result in winners and losers. They also suggested that council tax bills should explicitly state what changes are the result of reform and those which are caused by local spending decisions.[137]

114. The Minister for Local and Regional Government confirmed that any changes to banding the resulted from the Balance of Funding Review could be implemented at the same time as revaluation.[138] He also commented on the proposed changes:

"You will be aware that we took a lot of detailed evidence, particularly from the New Policy Institute […] I do not think it would break too many confidences and anticipate the conclusions of the review to say that we obviously looked with some interest at those and that our report is likely to comment on that area."[139]

115. We recommend that, in principle, banding should be expanded at either end of the scale with divisions in what are now bands A, G and H. We also recommend that multipliers should be changed to ensure that the new bands are broadly in line with household income, resulting in a wider range of liabilities from the present ratio of top to bottom bands of 3:1. All these reforms should be implemented at the same time as revaluation, in 2007, to avoid unnecessary disruption.

Regional banding

116. Many witnesses favoured the introduction of regional rather than national banding. A house valued at, say, £150,000 could be in different bands depending on where it is in the country. The New Policy Institute said:

"Unless something dramatic happens to house prices in the next year you will need some form of regional variation to allow government to take account of the fact that the incomes of people living in band C in London and the South East are very much lower than the incomes of people living in band C across much of the rest of the country. We think that that is actually quite do-able."[140]

The Association of London Government agreed with the New Policy Institute proposals saying:

"Extending the number of bands and/or changing the current weights might help reduce its regressive nature and improve the public acceptance of the council tax system, and should be examined before final decisions are taken. A study carried out for the ALG by the NPI has demonstrated the feasibility of using information about relative income levels to improve the fairness of council tax, and the ALG considers that decisions by the Government on revaluation must ensure that London residents are not required to pay proportionately more of their income in council tax than taxpayers elsewhere."[141]

117. When questioned about these proposals the Minister for Local and Regional Government told the Committee:

"The New Policy Institute, in their evidence to us, highlighted the possible scope for this and also explored some of the potential disadvantages, including the possibility of cliff-edge effects between different regions, though there are cliff-edge effects between different local authorities under the current arrangements. Those issues certainly were considered by the review and we are very conscious that the revaluation, which is scheduled to take effect from 2007, will be quite a challenging process and that the possibility of some regional banding might be appropriate in that context. The reason for the difficulty in being more precise at this stage is that, as you will appreciate, the crucial element is the relative movement of values of property between 1991 and 2005 when the revaluation process begins. During the early part of that period, we saw disproportionate increases in values in the southern part of the country, but more recently we have seen increases in house prices in some of the northern regions exceeding trends in the south. Therefore, if one is going to get an overall picture of what the relativities are likely to be at the time of revaluation, one does have to wait a little bit longer. If one made assumptions about the relative positions of different regions, based on, let us say, data in the year 2000, it might have been very different to what the picture might be in 2005."[142]

118. In a paper to the Balance of Funding Review the New Policy Institute address some issues that arose from their initial proposals. They concluded that so-called cliff-edge effects (where council tax rates vary greatly between authorities, or even on opposite sides of the same street) would be smaller with a maximum of 15% compared to 100% in some extreme cases at present. In addition, regional boundaries tend not to cut through towns, so any differences would not be so physically obvious. The cliff-edge effects from regional banding would be different as they could show up as properties of a similar value being in different bands. They also looked at how household income by band varied by region. At present there was a fairly similar distribution across the country, with only the South West standing out with an average 10% income deficit. Regional banding made the distribution more fair, compared to basic revaluation, other than for the South West, which still has a 10% income deficit.[143]

119. We recommend that consideration be given to regional and sub-regional banding being introduced to address any inequalities caused by revaluations and changes to the banding arrangements but not addressed by equalisation.

Regaining public confidence

120. We have already commented on the popular feeling against council tax that has arisen in recent years particularly. If the council tax is retained, then ill-feeling is certain to increase with revaluation unless the ODPM and local authorities can convince the public that real changes have taken place and that revaluation is not likely to hit them as hard as they might expect, or are led to believe. The reforms to council tax and other recommendations in this report, if accepted, will go some way towards making real improvement. However without a comprehensive public information campaign, they may not be accepted or sustainable.

121. Mr Woods from Newcastle City Council told the Committee how people viewed revaluation:

"I think a lot of people have a misconception about the effects of the revaluation. A lot of people in the communities are very worried that the uplift of the values would mean that they would be paying more council tax immediately, and that is not true. It depends on relative changes around the country, and we have been trying to get that message to the local community, who do feel, especially over the last year, when property prices in the North East have jumped substantially, that in 2007 they will be paying huge amounts more. There is a clear message which needs to be got over to the local population that a simple revaluation does not mean automatically that you will be paying substantial amounts more, because the bands themselves will change."[144]

122. The Director of Local Government Finance from the ODPM said that they knew that revaluation was a big issue and that communication would need to be very clear, but could not say exactly what form this or any consultation would take.[145] Another official admitted that the ODPM does not even have a draft timetable for when this will begin.[146] The Minister for Local and Regional Government agreed that public confidence is important,[147] and, after we questioned what the ODPM is doing to increase public awareness of the effects of revaluation he replied:

"At the moment we are not, because at this particular time the primary focus of the department is on completing the balance of funding review. The revaluation process will not begin until next year. Obviously preparatory work is being done with the Valuation Office agency to ensure that the necessary arrangements are in place for valuations to happen, but the impact of the changes will not occur until 2007 and it is slightly later down the line before it is really appropriate to begin to alert the public to the issue. If one currently raises questions about what the consequences of revaluation might be without having any answers to the questions people will raise, one might actually stir up a lot of anxiety without being able to give reassuring answers."[148]

He added that:

"Our conclusion was that it was probably appropriate to have a ten-yearly cycle of revaluations [...] Can I say that if people are worried that because of a large increase in their property value since 1991 they are likely to be faced with a large increase in council tax, the crucial message which we can all help to get across to our constituents at the present time is that there is no inherent consequence that will lead to increases in people's council tax liability if their property has increased in value by the same average as applies across the country as a whole."[149]

123. The Committee accepts that there is little at the moment that the ODPM can say definitively about the effects of revaluation on an individual's council tax bill. However, we are concerned that the Office had no plan ready to be implemented if council tax survives the Balance of Funding Review. There is a danger that council tax, however well reformed on a technical level, will not have public confidence and so will not be sustainable. We are not convinced that ODPM takes this issue seriously enough. If council tax is retained, then the ODPM should, at the earliest possible date, draw up and implement a strategy with local authorities to improve public confidence in council tax and their knowledge of the impact of revaluation. This should not wait for detailed information on property values, which can be communicated later, but concentrate on the general effects of revaluation and how council tax has been reformed to address its failings. We also recommend that, as suggested by the Audit Commission, council tax bills in 2007 should separately identify changes in individuals' bills that are the result of i) local spending decisions, ii) revaluation and iii) reforms to council tax.

124. Revaluations are a vital part of the local government finance system and one which corrects for changes in authorities' ability to raise income in the intervening years.[150] We welcome the Minister's commitment to a 10 year domestic revaluation cycle.

Council Tax Benefit

125. The perception that the current method of local taxation is unfair arose in large part from the increases in council tax which a number of authorities introduced for 2003/2004, as a means of meeting their spending plans. The increases were felt to be particularly harsh on two groups: pensioners and low-income households, including the low-paid. The impact may have been seen as greatest on low-income pensioner home-owners, the value of whose housing asset often bears no relation to their disposable income.

126. Council tax benefit (CTB) was introduced in 1993. It is currently paid to around 2.3 million claimants, at an annual cost to the budget of the Department for Work and Pensions of around £3.6 billion. Claims are made to, and handled by, local authorities. The Treasury estimates that the there is a further £1.2 billion of council tax benefit unclaimed each year.[151]

127. There are a number of problems with CTB, which were aired in evidence to us: but the fundamental issue is that of take-up. Evidence from the New Policy Institute observed:

"More fundamentally, CTB currently fails to achieve its objective because take-up is so low. Around 6½ million people are entitled to CTB—much more than any other government benefit—but only 4½ million claim their entitlement—a lower proportion than any other government benefit. Take-up is particularly low among pensioners (three-fifths) and owner-occupiers (half)."[152]

The Minister acknowledged the gravity of the problem:

"We know that for pensioners we are talking about rates of take-up of between one-half and two-thirds, which all of us would agree is far too low, especially amongst pensioners who are also owner-occupier […] we will not be satisfied until everyone entitled to that benefit is receiving that benefit, especially those pensioners, perhaps 1.7 million pensioners, who are entitled to this help but are not getting it."[153]

128. There are a number of explanations for the dismal rate of take-up of council tax benefit:

i. Unawareness of the existence of CTB: owner-occupiers who qualify for CTB may as a group be relatively less attuned than other groups to the possibility that they qualify for such assistance than other categories. As one witness suggested:

"I think one of the issues is that because quite a large number of people are owner-occupiers and because they often are not in constant communication with the state they do not get encouraged on an individual basis to apply for things whereas people in council housing are advised to do so."[154]

ii. The complexity of the application process, and its separation from other related regimes such as state pensions: the Minister acknowledged both the problem of complexity:

"We recognise that it is inevitably too complex [...] But all the time we are looking to see whether or not we can reduce the size of those forms as well as make them easier to fill out."[155]

and the need to connect CTB with other related measures:

"The Pension Service is doing a lot of work to try to make sure that when people apply for pension credit they are told if they may be entitled to council tax benefit and they receive a copy of the form."[156]

iii. The stigma attached to CTB being presented as a "benefit" rather than, more accurately, a "relief" from a tax; witnesses from the Association of North East Councils stated that:

"I think there is an issue particularly amongst some of the elderly people in society that it is a handout, a benefit, and many people are very self-reliant and reluctant to take up their benefit. The stigma of claiming benefits is something they will avoid at all costs."[157]

Cllr Bakewell, Leader of Somerset County Council, pointed out that:

"Some pensioners are far too proud to claim benefit, they feel they have failed if they have to claim benefit, and they would attempt to struggle on in quite desperate poverty in some cases."[158]

iv. The sheer numbers of those eligible, which has risen as a result of increased benefit rates and thresholds, means that each year significant numbers of households qualify for the first time; as the Minister told us:

"We have also seen increases in council tax benefit rates and applicable amounts which are above the rate of inflation. That has meant […] that the number of people eligible for council tax benefit has increased […]."[159]

v. The particular problem with a punitive savings limit which does not affect take-up directly, but may well give the CTB a bad name, and penalise pensioners; as the New Policy Institute noted:

"One problem with CTB is the current savings limit. Households currently lose their entitlement to CTB if they have only modest amounts of savings; for example, it takes only an additional £10,000 of savings (above the first £6,000) to wipe out all entitlement to a benefit worth on average £1,000 a year. This amounts to a punitive rate of "taxation" on small amounts of savings. We suggest that there is a strong case for abolishing, or at least substantially raising, the current savings limit."[160]

129. The problem of low take-up of CTB is not a new one, and it is at least being addressed. The Minister told us:

"[…] through the council tax benefit awareness campaign which we launched a few weeks ago, we want to get across the message to pensioners that this is something to which they are entitled: they deserve it, they need it, and we want them to get it."[161]

and that:

"In my own county of Kent, for instance, all the local authorities are working together to coordinate the information they send to people about council tax benefit to try to increase awareness."[162]

But in the same breath he warned:

"We have to recognise that we are dealing with local authorities who are independent and autonomous, who will pursue this campaign in different ways according to their local circumstances, and that is something that we welcome."[163]

130. Whatever other changes are made to council tax benefit, the Government needs to give a higher priority to increasing its take-up by a number of readily identifiable target groups, in particular pensioners, and low-income households. It is unfortunate that the central Government is saving over £1.2 billion of unpaid council tax benefit every year, and that 2 million households are paying more than they should to local government.

131. Evidence to us from the New Policy Institute set out very cogent arguments for conversion of CTB into a form of tax credit, so that a household entitled to CTB would simply pay a reduced amount of council tax.[164] In oral evidence Peter Kenway argued:

"You do not need to have a benefit attached to a tax. People have remarked how strange it is to have a benefit to allow you relief from a tax. You could have a straight assessment on the basis of your income and your savings. You could have something much more like the way in which your income tax is assessed if you are self-employed or have to give in a tax return and I think that sending your information off to the Inland Revenue to find out how much you have to pay does have a different feel, it is a different relationship from that which you have when you are applying for a benefit, the money in some senses is moving in the opposite direction."[165]

In written evidence the New Policy Institute noted the particular attraction of its scheme for pensioner households:

"Because a pensioner household's maximum liability is likely to change very little, even over a number of years, once its normal council tax has reached that level, the amount that has to be paid will hardly change. This gives such households certainty about the size of future council tax bills and it makes it clear to them that they are protected against further rises in the level of council tax set by local authorities."[166]

132. When asked during an evidence session if council tax benefit would be better received as a tax credit rather than a benefit the Minister replied, "It is very possible that it would be […] That is one of the things we are looking at carefully."[167] We are pleased to note that the prospect of conversion of CTB into a tax credit is being seriously examined within Government. We recommend that in response to this report the Government set out the nature of the inquiries it has set in motion into conversion of council tax benefit to a tax credit, any obstacles identified so far, and a timetable for possible implementation. We are strongly of the view that this is the way forward in making a property tax a more acceptable means of raising local revenue. We do not, however, underestimate the time and effort required to implement such a change, not least at local level. As an interim measure, and a further means of improving take-up, we therefore recommend that council tax benefit be re-branded as council tax discount or rebate, more accurately reflecting its true nature.

Equity release schemes

133. The problem with the current system of council tax where individuals who are asset rich, but income poor, face large bills could be solved if they were encouraged to release some of their capital from their property. An equity release scheme, provided by reputable organisations, perhaps endorsed and promoted by local authorities, could be a means of achieving this. Alternatively, proponents of the land value tax have suggested that a deferment of council tax payment could be made through bonding. They have argued that a householder could postpone the payment of local taxation and when they leave the property, "The council tax plus interest at base rate would then be payable to the council when the property is sold or developed". The Government should do further work to ensure equity release schemes, or other means of deferring payment, are available.

111 Ev 3 HC 402-II [Office of the Deputy Prime Minister] Back

112 Ev 58 HC 402-II [Audit Commission] Back

113 Ev 16 HC 402-II [Local Government Information Unit] Back

114 Ev 24 HC 402-II [Local Government Association] Back

115 Ev 120 HC 402-III [Policy Exchange] Back

116 Q 673 [John Healey MP, Economic Secretary to HM Treasury] Back

117 Ev 16 HC 402-II [Local Government Information Unit] Back

¹¹⁸Ev 38 HC 402-II [New Policy Institute] Back

119 Ev 58 HC 402-II [Audit Commission] Back

120 Ev 63 HC 402-II [Association of London Government] Back