Council tax rates are set by local authorities and the amount payable on a property will depend on the valuation band to which it has been allocated and the council tax rate the authority sets for that band. Every year local councils set a rate for each band and this determines the amount to be paid for all the properties in that band. However the bill may be reduced in certain circumstances. These include discounts if the dwelling is occupied by only one adult. There is also a reduction scheme that may be applicable if there is a disabled person in the household. In addition there are second adult rebates and council tax benefits. Second homes and holiday homes may also receive discounts.
To calculate the council tax rates for its area every local authority sets the rate for a band D home occupied by two adults, who are liable to pay the tax and this figure determines the rates for the other bands for domestic properties within that local authority in accordance with formulae laid down in the Local Authorities (Calculation of Council Tax Base) Regulations 1992. There is a fixed ratio between the charges in each band which can be expressed as a proportion of the charge for band D. For example the rate for H is twice the rate for D and the rate for A is two thirds that of D, and so on with the rates for each having a fixed ratio to each of the others. If the band D charge was set at £1,500 for instance, then the amount payable for A would automatically be set at £1,000 and that for H at £3,000. The ratios to band D for each of the others are: A (6/9), B (7/9), C (8/9), D (9/9), E (11/9), F (13/9), G (15/9), H (18/9). Therefore if the council tax rate for band D is £1500 the the rates for the rest of them would be A (£1000), B (£1,167), C (£1,333), D (£1,500), E (£1,833), F (£2,167), G (£2,500), H (£3,000). If the band D council tax rate was standardised across authorities then those with a larger concentration of properties in the higher rather than lower bands would raise a greater overall total of tax than those councils with a higher concentration of homes in the bottom valuation brackets. This is because on average dwellings in the top bands pay more in council tax than homes assigned to the lower valuation levels. In reality each authority sets its own rates according to the amount of money it needs to raise from this form of taxation. In total Council tax generates about twenty five billion pounds annually and contributes approximately a quarter on average of local authority income, with the remainder coming from central government in the form of Revenue Support Grant (RSG) and redistributed National Non Domestic Rates (NNDR). To calculate the basic amount of council tax, the budget requirement (minus RSG and NNDR) is divided by the tax base for band D properties, and this amount determines the council tax rates for the other bands in accordance with the ratios set by national government. Every year local authorities calculate the number of band D equivalent properties after taking into account such factors as exemptions, discounts and collection levels. The number of band D equivalents can have an influence on council tax rates. Variations in housing profiles across different authorities can produce differences in band D equivalents which can effect the rates of council tax. Other things being equal the more properties there are in the higher rather than lower bands, the greater will be the number of band D equivalents and therefore the lower will be the charges.
Increases in council tax rates have come in for considerable criticism and they are often felt to be unnecessarily large by many people. When it was first introduced in 1993/1994 the average council tax rate for a band D home was £568. This had increased to £1439 in 2010/2011 which was an additional £871, representing a rise of 153%. Although the tax is set by local authorities, the national government is able to take capping action to prevent excessive increases, and these powers were first used under existing legislation in the year 2004-2005.
Council tax bills are sent to householders by billing authorities. These are the local authorities responsible for collecting and setting the tax. They also administer any exemptions and discounts that might apply. There are 326 of them and they are sometimes referred to as lower-tier authorities. They include metropolitan district councils, unitary authorities, shire district councils, London boroughs, the Council of the Isle of Scilly and the City of London. There are also Precepting authorities which can instruct billing authorities to collect amounts from council tax on their behalf. Precepting authorities include parish councils, the Greater London Authority, some county councils, civil parishes, police and fire authorities and passenger transport executives. Precepting authorities independently set amounts to be raised (precepts) from homes in the area. The precept is divided by the number of nominal band D properties in that area and the resulting figure is the amount payable on a band D dwelling. The rates for the other bands can be calculated with reference to the band D rate. Precepts are shown separately on council tax bills.