Council Tax - Structure

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

Council tax was developed as a replacement for the community charge, whose turbulent three-year history was extremely unpopular and difficult to administer.

The so-called 'poll tax' - a term first used in the context of 1381's Peasants' Revolt, the 'poll' meaning 'head' - was introduced by the Thatcher Government to correct the weaknesses of the domestic rates system.

By taxing people rather than property, the community charge taxed large numbers of people previously excluded. Only about 25 per cent of local people were issued with bills under the rates system, but the new system charged adult children living with parents, lodgers etc. Some steps were then taken to mitigate the regressive effects of the community charge by a series of discounts and exemptions.

However, there was considerable public opposition to the poll tax and many people refused to register to pay it. Although houses were immobile, people were not, and keeping track of citizens' movements - particularly in cities - combined with widespread protests that occassionally broke into rioting, made the system unworkable.

One of the first significant reforms of the Major Government was to replace the community charge with council tax, which combined a 50 per cent property and a 50 per cent personal element, thereby avoiding the worst excesses of both the preceding systems.


Controversies

Unlike the community charge, the council tax system was initially widely accepted. But accelerating increases - reaching an average 12.9 per cent in 2003 - have led many to call for its replacement. Indeed, a 2003 report by the Audit Commission described the local government funding system as "fundamentally flawed".

Even so, most opposition to council tax arises from its level - and by extension the local government funding settlement - rather than a perception of intrinsic unfairness. However, accelerating levels have hit people on low or fixed incomes, such as pensioners, the hardest.

Local authorities frequently accuse the Government of underfunding them through central grants while imposing additional duties that they must fulfil - requiring councils to put up council tax to meet objectives they have not been involved in setting. Increasingly, councils are arranging local referendums on their spending plans to seek public support for proposed increases.

The Government has threatened to cap increases from 2004-2005 if local authorities do not moderate their demands.

Debate about what should replace council tax, if anything, covers alternatives such as a ring-fenced proportion of income tax revenue, local income taxes and increased reliance on charging for services. Any change, however, will create winners and losers.


Quotes

"Council tax's unpopularity springs from its basic design fault: its unfairness. Most significantly, the banding system puts a ceiling on what the richest pay, and a floor under what the poorest pay."

Liberal Democrats 'Axe the Tax' wesbite, 2003

"I think it's unlikely that we would wholly do away with a property based tax."

Local Government Minister Nick Raynsford MP, January 2004