Council Tax is a form of property taxation in the UK and is collected to contribute to the financing of local services. UK council tax was first introduced in 1993 as a replacement for the community charge (generally referred to as the "poll tax") which was itself brought in to replace the rates system of taxing domestic premises. It is applied to every domestic property regardless of whether it is owned by the occupiers or rented by them. Unlike the old local rates which were based on rental values, council tax depends on assessments of market values. Nearly twenty three million homes in England are currently registered for it.
Residential properties are divided into eight council tax bands, according to the value of the property, with each band having a different level of taxation applied to it - more valuable properties paying a higher level of tax than those of lower value. These bands range from A which is the lowest to H which is the highest. The amount paid by people in the top band is three times that paid by People with properties in the bottom band. Middle band (D) properties pay one and a half times the amount paid by council tax band A properties. Band D is generally regarded as the average band. In England the council tax valuation bands are determined by property values on April 1 1991 not present day market values. They are based on the amount properties might have been expected to be sold for if the transaction took place in 1991. (New homes are given nominal 1991 values in England, and are given 2003 values in Wales). A revaluation of domestic properties in Wales became effective on April 1 2005, replacing 1993 values with those of April 1 2003. It was planned to revalue homes in England in 2007, but in 2005 it was announced that the decision would be postponed until after the election. According to the labour party its election manifesto promised not to carry out a revaluation. The present government has said that there will be no revaluation of homes during this parliament. There are at present no plans to revalue residential properties in England and Wales. Council tax bands for most of the UK are out of date. With the exception of Wales where properties were revalued in 2003, property bands are base on assessments of market values in 1991. By 2010 the average UK house price had increased by around 200% indicating that many homes may be in the wrong band at today’s prices, especially in those parts of the country where prices have risen most. In Wales the 2005 valuation list which was based on 2003 prices, over a third of homes were placed in a higher band than they were in the 1991 valuation, and some had moved three and sometimes four bands higher, resulting in much larger council tax bills. Less than ten percent of properties were put into lower bands than in the previous list, with nearly sixty percent staying at the same level. A new top band (I) was introduced and some dwellings were placed in this. In areas where property prices had increased by a great deal there was a correspondingly greater proportion of properties moving to higher valuation brackets, more than sixty percent in Cardiff moved up, as did over fifty percent in Wrexham. (Council Tax Wales) It is widely recognized that council tax bands are regressive. In England band H properties have market values of £320,000 and over, which is at least eight times as much as band A homes which are valued at £40,000 and below. But band H homes only pay three times as much council tax. Band H has no upper limit so that even houses worth tens of millions of pounds are still in this bracket, and yet they only have to pay three times the amount paid by people living in band A properties which can include very small dwellings. The Regressiveness of the system is the main reason for the perception that council tax is too high.
The distribution of properties between the bands is heavily skewed towards the lower valuation levels. About a quarter of properties in England are in A, just under a fifth in B, and just over a fifth in council tax band C. Taken together the lowest three brackets account for more than 65% of properties. Fifteen percent are in D and ten percent in E. The top three brackets together only contain around ten percent of homes, with H having less than 1 percent. There are also marked regional variations in banding profiles, with the South and South East tending to be at higher levels than the rest of England. In South Yorkshire and parts of the North East over half of households are in A, and in the West Midlands over thirty percent are in the lowest bracket. In some authorities more than sixty percent are in this band. In outer London however only two percent are in band A, and in Kensington and Chelsea it is down to one percent. Throughout England as a whole, under 1 per cent of homes are in the highest bracket, but in inner London, five per cent of properties are in this category, and in Kensington and Chelsea the figure is as high as 17 percent. Around 20% of properties in England are in E to H, but in the North East this falls to 6% and in the West Midlands 12.5%. In London and the south east about 30% are in the top four brackets. (see also Band Distribution). The council tax collection rates for different local authorities in England in the year 2010 – 2011 ranged from below 92% to over 99%. Throughout England as a whole £21.9 billion was collected out of a total collectable amount of £22.5 billion pounds, giving an average council tax collection rate of 97.3%. The amount uncollected was £0.6 billion, or 2.67 percent of the total amount collectable. Since 1993 when the tax was brought in the backlog of uncollected council tax is estimated to be over £2.5 billion. As well as the 21.9 billion pounds collected in 2010 – 2011 from taxpayers, 4.299 billion pounds was paid by the Department for Work and Pensions (DWP) in council tax benefits giving a total £26.199 billion of council tax in England for the year 2010 – 2011. (Council tax benefit payments are not included in collection rate statistics published by the Department for Communities and Local Government because they are paid by DWP directly to local authorities on behalf of the claimants.)
Council tax rates for dwellings in each band are set by individual local authorities and the amount people have to pay for their homes will be determined by the band it is placed in and the rate the local authority applies to that band. The general procedure for calculating council tax rates is to divide the budget requirement (after income from national non domestic rates and the revenue support grant have been deducted) by the tax base for properties in band D and because each band has a fixed ratio to each of the others, the resulting figure determines the rates for the remaining bands for domestic properties within that local authority. Dwellings of similar value in the same band may pay different amounts if they are in different authorities. Council tax bills are sent out by billing authorities which are the local authorities responsible for setting and collecting the tax and for administering discounts and exemptions. They collect the tax on behalf of themselves as well as other local authorities in the same area. Council tax bills may include precepts levied by Precepting authorities and these would be shown as separate items on the bills householders receive.
The amount payable can be influenced by any Council Tax Benefits people might be eligible for and which could reduce or remove their liability to pay. Benefits can be as much as 100% of the total charge. In 2010 - 2011, 4.8 billion pounds was paid in council tax benefits in England, Scotland and Wales. These Benefits are not paid directly to people in the form of money. They have the effect of reducing the amount of money people will have to pay if they receive them. People will get new bills showing the reduced amounts they will have to pay. However it is means tested and only those with very low incomes will be entitled to the full amount of benefit. A great many less well off people are not eligible for it – their incomes may be above the level of entitlement, and yet can be below the official poverty line, and people in these circumstances can even be paying the full amount of council tax. Large numbers of low-income households pay a greater amount of money in council tax than they pay in income tax, and it is an expenditure which can contribute to their financial difficulties. In 2010 – 2011 there were 5.88 million People in receipt of council tax benefit in England Scotland and Wales. This is higher than any other means tested benefit. The only benefits to have more recipients are the state pension and universal benefits. The next highest benefit in terms of claimants is housing benefit with 4.95 million recipients. The amount of money spent on council tax benefit makes up 2.5% of total government expenditure on benefits. 3.6 million Claimants (62% of the total) are under 65 with an average claim of £825 per year and an annual total of £2.960 billion pounds. 2.2 million Claimants (38% of the total) are over 65 with an average claim of £835 per year and an annual total of £1.857 billion pounds. The Council tax benefit system is very complicated and there is a low take up rate with only about two-thirds of those entitled to the benefit actually claiming it. Council tax benefit has a much lower take up rate than other income related benefits. Estimates for 2009 - 2010 indicate that take up was 64% to 71% by expenditure and 62% to 69% by caseload. This means that somewhere between 31% and 38% of people entitled to claim council tax benefit are not in receipt of it, and that between 29% and 36% of benefit goes unclaimed. The estimates for 2009 – 2010 suggest that between 2.34 million and 3.20 million people are entitled to Council Tax Benefit but are not claiming it, and that the total amount of unclaimed CTB is between 1.7 million and 2.42 million pounds. In 2009 – 2010 there were 5.19 million recipients suggesting that the actual number of people entitled to claim it is between 7.53 and 8.39 million people, or 15% to 17% of the entire UK adult population. This in itself is another confirmation of the extreme regressiveness of the council tax system that it can create so much benefit dependency. Council tax benefits clearly do not fully address the problem of reducing the burden of the tax on less well off people. They also, create the additional problem of council tax benefit fraud which accounts for millions of pounds every year. Council tax benefits and savings is also controversial because the amount of capital and savings a person has can affect their entitlement to council tax benefits. People with savings above a certain amount may find that they are unable to get council tax benefits. In 2012 the cut off is £16,000 – those with savings above this level will not usually get council tax benefit unless they get an income related benefit such as Pension Credit Guarantee Credit. Savings levels below certain amounts are ignored when calculating entitlement to council tax benefits. These lower savings levels are £6,000 for people below the age of sixty, and £10,000 for those over sixty. For savings between the lower and upper savings levels, notional tariff income is assumed. For people below the age of sixty, each £250 of savings between £6,000 and £16,000 is assumed to represent £1 per week income. For those above the age of sixty every £500 of savings between £10,000 and £16,000 is regarded as yielding £1 of tariff income per week. The £16,000 cut off level is considered to be particularly harsh on pensioners since nearly a third of pensioner households have savings greater than this amount and they will not be entitled to council tax benefit unless they qualify for Pension Credit Guarantee Credit. Capital, held by pensioners represents a lifetimes savings and it is not surprising that a substantial percentage of them exceed the £16,000 level. The savings rule has resulted in council tax being referred to as a 'tax on savings'. The fact that the capital rules do not include the value of the claimant’s own home favours owner occupiers in comparison with people who rent their homes. Owner occupiers may be asset rich - their homes often represent an asset worth hundreds of thousands of pounds, but if their savings are below the cut off point they may get council tax benefit. People who rent the homes they live in may be asset poor in comparison but if their savings exceed the cut off they may not get benefit. Although this is characteristic of the benefit system as a whole, it should be remembered that the need for council tax benefit is the only state inflicted form of benefit dependency. There are various council tax discounts and exemptions. For example discounts of between ten and fifty percent can be given for second homes and holiday homes, although the government is considering proposals to introduce measures allowing local authorities to remove the discount and charge full council tax for these properties. (See also second homes discounts.)
Council tax generates around 26 billion pounds in England, and on average contributes about 25% to local authority finances. It is used to pay for local services with the rest of the money coming from the revenue support grant and national non domestic rates. Council tax rates have increased by considerable amounts since the tax was first introduced. In the year 1993–1994 the average band D rate was £568. By 2010-2011 this had risen by £871 to £1439, an increase of 153 per cent. However Council tax 2011-2012 bills are frozen at the same level as last year. There are a number of different methods of making council tax payments, including direct debit, standing orders as well as several other ways. Local authorities can provide more information on how to pay council tax. People can pay by ten installments if they wish to. If an installment is not paid when it is due then authorities will send a reminder requesting people to pay it within seven days, and if this is not paid then the right of the person to make payments by installments is withdrawn and the full outstanding balance has to be paid. If this bill is not settled within seven days then the local authority may take legal action. A summons may be issued for the person to appear before a magistrate’s court and a liability order can be made which will demand full payment with the addition of costs. If a liability order is issued, enforcement action can be taken by the local authority to obtain the amount owing. Recovery action can include attachment of benefits or earnings, Bankruptcy proceedings and the appointment of bailiffs to take property which can be sold and the amount raised used to pay off the debt and associated costs. Two weeks before the first visit of the bailiffs the authority has to send a letter stating the amount owed under the liability order issued against the person. The council and bailiffs can be contacted before the visit to make an arrangement to pay. This should be done quickly to avoid the cost of the bailiffs visit otherwise these would be added to the amount owing. If the council tax bill hasn’t been settled after the use of bailiffs, councils can ask magistrates courts to issue a warrant committing the person to prison. Councils will only do this when all the other ways of getting the person to pay have been unsuccessful. The court will have to hold a means enquiry in the presence of the taxpayer before a warrant of commitment is issued and it will only issue the warrant if it is satisfied that the reason for non-payment of council tax is culpable neglect or wilful refusal. The court has the authority to remit the entire debt or part of it, and to postpone imprisonment if specific conditions are met which usually concern having an repayment plan for the sum outstanding. If a term of imprisonment is imposed then the maximum length of time it can be for is three months. Councils will only apply for a warrant for imprisonment when all other ways of getting a person to pay have failed. People who have difficulty paying their council tax bills should contact their local authorities as soon possible. Citizen’s advice bureaux can also provide useful information. It is accepted that the tax is regressive in that people of lower income pay a higher percentage of their incomes in the tax than those who have higher earnings. It is widely criticized for being unfair and there are a number of calls to reform or replace it with a fairer form of taxation. In general direct taxes are progressive in that they take a higher percentage of income from people that have the highest earnings. The top 20 percent of households in terms of income pay almost two and a half times as much as a proportion of their gross earnings in direct taxes as the bottom 20 percent pay. Council tax, Northern Ireland rates and business rates are exceptions. They are all property taxes and the money payable is based on assessments of market prices or rental values, not on the income of the person who has to pay the bill. The amount people earn is not taken into account when calculating the level of tax to be levied on a property, and although bills may be adjusted to reflect any benefits or rates relief a person may be eligible for they are still regressive so that the less well off pay more of their incomes than the rich pay. The poorest fifth of households pay about three times as much in council tax as a percentage of their earnings as the richest fifth, which is the reverse of the general pattern with direct taxes.
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