Council tax - Levels

What is council tax?

Local government is financed by a combination of centrally-administered funding and locally-administered charges and taxes - the most significant of which is council tax.

Council tax combines elements of both its predecessors: the property-based rates system that existed until 1990 and the community charge or 'poll tax' on individuals, which existed from 1990 to 1993. Council tax has both a property value element and a personal element.

People's council tax liabilities depend on which 'band' their property is in, the number of council tax payers in the local authority's territory (the council tax base), how much the local authority intends to spend that year and the funding it has been allocated from central government.

'Collection authorities' include unitary authorities, London borough councils, metropolitan borough councils, and shire district and borough councils. In two-tier areas, the district council collects council tax to pay for its own services and to cover the precept issued by the county council and any relevant parish or community council for the services they provide.

Precepts are also added to people's total council tax bills by the local police authority and any relevant fire and civil defence authority.


Background

There are nine council tax bands, A to H. The bands were set widely in order to cover a range of properties and to prevent a need for regular revaluation.

Properties in England are fitted into bands according to their values as at April 1st 1991:

Band A: Up to £40,000
Band B: £40,001 - £52,000
Band C: £52,001 - £68,000
Band D: £68,001 - £88,000
Band E: £88,001 - £120,000
Band F: £120,001 - £160,000
Band G: £160,001 - £320,000
Band H: £320,001 and more

Properties in Wales have been revalued more recently, however, to bring council tax bands closer to current values. The valuation was carried out on April 1st 2003, and the new council tax came into force in 2005/06:

Band A: Up to £44,000 (previously up to £30,000)
Band B: £44,001 to £65,000 (£30,001 - £39,000)
Band C: £65,001 to £91,000 (£39,001 - £51,000)
Band D: £91,001 to £123,000 (£51,001 - £66,000)
Band E: £123,001 to £162,000 (£66,001 - £90,000)
Band F: £162,001 to £233,000 (£90,001- £120,000)
Band G: £223,001 to £324,000 (£120,001 - £240,000)
Band H: £324,001 to £424,000 (£240,000 and more)
Band I: £424,001 and more (new band)

Band D is the datum point for calculating council tax bills, so the charges for properties in the other bands are calculated as a ratio of the Band D charge:

Band A: 6/9
Band B: 7/9
Band C: 8/9
Band D: 1
Band E: 11/9
Band F: 13/9
Band G: 15/9
Band H: 2

The Band D charge is calculated (broadly) by the local authority subtracting the revenues it receives from other sources from the amount it intends to spend in the coming year, and dividing this by the council tax base.

The resulting figure then has relevant precepts added to it. In district council areas, the precept imposed by the county council will usually be the largest element of the bill because it provides the most expensive services, such as education and social services.

Bills are subject to a range of discounts: single person households receive a 25 per cent discount; owners of unoccupied properties receive a 50 per cent discount; certain categories of people, including students, carers and people with severe mental disabilities, can be 'disregarded' when calculating the number of people in a household; and properties whose value has been increased by adaptations for disabled people can have their banding reduced.


Controversies

The banding system can be a source of grievances. It is based on April 1991 valuations, which have less relation to current house values following the boom of the late 1990s and the divergence of house values between regions.

Council tax revaluation in Wales came into effect in April 2005 and a new banding system for England was due to be introduced in 2007. However, the government postponed this indefinitely in 2005, saying it wanted to wait for the Lyons inquiry into local government funding to make its recommendations.

Sir Michael Lyons eventually recommended in March 2007 a revaluation should take place, with additional bands created to capture the cheapest and most expensive properties. It said the re-banding could wait for a while, but it said the government needed to update the base rate to improve fairness.

No revaluation scheme will be launched before the next general election, ministers have said.

Meanwhile the banding system has also been criticised for putting a ceiling on the liabilities of the very rich, as Band H runs from £320,000 to many millions.

In addition, local authorities frequently accuse the government of underfunding them through central grants while imposing additional duties that they must meet - requiring councils to increase council tax to meet objectives they were not involved in setting. Increasingly, councils are arranging local referendums on their spending plans to seek public support for proposed increases.

Although council tax is intended to provide 50 per cent of local authority funding, in fact it provides nearer 25 per cent. The reliance on central government is seen by some to weaken local authorities' capacity to act independently.

The Liberal Democrats have long had a pledge to scrap council tax altogether, and instead replace it with a local income tax that would be less of a burdenfor people on low incomes.

Latest developments

On March 27th 2008 the government announced its lowest rise in the average council tax bill for a decade, by four per cent for Band D households. The government argued it had prepared for the economic slowdown by rises in previous years but the Local Government Association warned many councils would be forced into making tough decisions about spending.


Council tax statistics

The average Band D council tax bill in England in 2005/06 was £1,214, and the average increase compared to the previous year was 4.1 per cent

The highest regional average Band D council tax bill in England was in the north-east, at £1,280. The lowest was London, at £1,162.

The highest average Band D council tax rate charged in 2005-2006 was in South Bedfordshire, at £1,396.

Statistics: (Source: ODPM, Local Government Finance Council Taxes 2005/06. These include local authorities that have been capped)


Council tax levels quotes

"As regards the financial year beginning in 1993 and subsequent financial years, each billing authority shall, in accordance with this part, levy and collect a tax, to be called council tax, which shall be payable in respect of dwellings situated in its area."

Section one of the Local Government Finance Act 1993

"Our view is that local authorities can and should deliver council tax increases in low single figures in 2004/05."

Local government minister Nick Raynsford MP, January 2004

"Councils are being held to ransom. The majority of local authorities already stretch themselves to spend more on education than the government's designated amount. Councils should be answerable to their communities for spending decisions."

Sir Jeremy Beecham, Local Government Association, February 2000

"Tinkering with council tax is not enough. It must be scrapped and replaced with a fair system based on ability to pay."

Liberal Democrat local government spokeswoman Sarah Teather, August 2005