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The history of rates as a form of property taxation in the UK can be traced to the Elizabethan poor law act of 1601 and to the land taxes and rates of the earlier years of the Tudor period, and they continued to be used as a method of local taxation until the later decades of the twentieth century when the reforms of the Conservative government of Margaret Thatcher were carried out. By then of course rates were used to pay for local services instead of poor relief. Since 1929 rates had been a general tax and were no longer levied specifically as a poor rate. In the Thatcher reforms, rates on domestic property were abolished and replaced by the community charge ("poll tax") which within a few years was also abolished in favour of council tax. Local control over the setting of business rates was also removed and replaced by a national non domestic rate, which was collected by local authorities and put into a central fund, which was then redistributed to councils on a per capita basis. Thus the amount received by an authority from commercial property taxation would depend on its population not on the proceeds from business rates in its own locality.

In the rating system the burden of taxation fell disproportionately on those of low incomes, a characteristic it shares with both the community charge and council tax; in fact although rates were regressive, both of these replacement taxes were even more regressive than the rates had been.  Rates are based on assessments of the amount of rent that a property would command on the open market assuming that it continues to be used as it is at present – how much rent a hypothetical tenant would pay on the assumption that the property continues to have its existing use.  On this basis, properties were assigned rateable values which were multiplied by locally set coefficients ("rate poundage" - pence in the pound) to arrive at the amount of rates payable. The more valuable properties would have higher rateable values and the people occupying them would tend to be the better off members of society. It was generally the case that people with the highest earnings tended to have more expensive homes with higher rateable values and as result paid more in rates than low income households. However as a percentage of their incomes they paid less in rates than people with low earnings.  This was confirmed by the Allen committee of 1965 which presented research findings demonstrating that rates accounted for a greater percentage of the earnings of poorer families than of wealthier households. In order to mitigate the regressiveness of the tax and its impact on low income households, the Allen committee recommended that rate rebates should be brought in. About four million households were eligible for rate rebates when they were subsequently introduced, and there was a take up rate of about 75% for the population as a whole, rising to approximately 90% of pensioners. The effect of rebates was to assist the poorest income groups, but the rating system remained fundamentally regressive. This was a problem that needed to be addressed in any reforms of local taxation, but instead the community charge and subsequently council tax were both more regressive than domestic rates. Rates are acknowledged to have been an unpopular tax, but they were comparatively unimportant as sources of revenue when looked at in the context of UK taxation generally. By the 1980’s, rates made up around ten percent of the total amount of tax collected in the UK, with under 50% of this percentage contributed by domestic premises. Rates as a whole were less important than sources of revenue such as income tax, excise duty, and VAT; and domestic rates raised about 20% of the amount of revenue generated by income tax, and this would be even less if rate rebates are taken into account. This is a broadly similar picture to that presented now by council tax which generates about twenty five billion pounds annually or 5% of the total amount of tax raised in the UK each year. It is the sixth most important source of revenue, and yields 16% of the amount contributed by income tax. Business rates now raise a slightly smaller amount of revenue than council tax. Although rates were comparatively unimportant in the overall context of UK taxation, their impact was much greater for poorer households, even after rebates. The more people earned the less as a percentage of their total tax payments they paid in rates. For people earning less than £2,600 a year rates accounted for an average of 16% of the total amount of tax they paid, but for those earning over ₤13,000 per year it was only around 5%. For single pensioners earning less than £2,600 per year rates accounted for about 30% of the taxes they paid. Other forms of tax were more progressive in that they were commensurate with income, or there may be an element of choice such as with vat which is depends on purchases. Rates were a direct regressive tax that people had to pay. A further problem with using rates for domestic property taxation is that during the twentieth century the pattern of housing tenure changed considerably from a predominantly privately rented tenure to owner occupation. In 1914, 90% of homes were privately rented and only 10% owner occupied. By 1990 nearly 70% of homes were owner occupied and less than 10% privately rented. Since rates are based on assessments of rental values it is more suitable for a housing pattern where the prevailing tenure is based on rents.  The rental evidence was also complicated by the fact that local authority housing was let out at rents that were below open Markey levels and that rent controls operated for private rented accommodation.

The amount of rates payable on a property depended on its rateable value and the rate poundage set by the local authority. Rateable values of domestic properties varied according to such factors as the size and quality of accommodation as well as location. As might be expected for example, larger homes had higher rateable values than smaller properties. There were also substantial regional variations with greater London and the South East having much higher rateable values than the rest of England especially Yorkshire and the North of the country. It is highly likely that revaluation would have amplified these differences. Rates revaluations were meant to take place at five yearly intervals in order to keep valuation lists up to date, but these would sometimes be rescheduled or suspended and when they did take place often resulted in unpopular rate increases for homes that had increased in value, particularly at times of high house price inflation. The last revaluation in England and Wales occurred in 1973 which was followed in 1974 by an average rate increase of over 30%.  It was because of criticisms of huge rate rises that the Layfield Committee on local government finance was appointed, with the remit of reviewing the entire system of local government finance in Scotland, England and Wales.

The report of the Layfield Committee came out in 1976 and it argued that there was a choice between two approaches to local authority finance – more central government control or a greater degree of local autonomy. The majority of the committee preferred greater local autonomy and suggested that an additional source of revenue should be introduced to increase local financial independence. The committee recommended that a local income tax should be the new source of local revenue. (Other possible local taxes were discussed and were felt to be less suitable by the committee. These included pay roll tax, local fuel tax, site value rating, share of national taxation, and local business profit tax.)  The committee also proposed that domestic properties should be assessed on capital values instead of rental levels, because there was more evidence available for the selling prices of homes than of the rent that could be charged for them. In addition it argued that agricultural land and buildings should be brought into the rating system. Although the committee accepted the shortcomings of the rating method of taxation, it found that as a local tax there were a number of advantages to rates. For example, ease of administration, hard to evade, cheap to collect and predictable yield. They were highly visible which heightens local government accountability. It was felt that rates are especially suitable as a local tax due to being charged on property which is immovable.

The reforms put forward by the Layfield Committee were not put into operation and rates remained as the only tax set by local authorities. There were no further revaluations in England and Wales and Householders continued to pay rates based on assessments of rateable values made in 1973. By the time domestic rates were abolished in 1990, rateable values were seventeen years out of date and this covered a period of high house price increases, particularly in the south east of England. (This can be compared with the position for council tax in 2012 which for England and Scotland still depends on valuations carried out in 1991 making them twenty one years out of date. During this time average house prices in the UK showed an increase of about 200% with considerable regional variations in house price inflation suggesting that a revaluation now could produce a markedly different pattern of council tax banding.)  A rates revaluation did take place in Scotland in 1985 and resulted in much criticism of the resulting rate increases. In 1986 the government brought out a green paper Paying for Local Government which proposed various changes to the system of local government financing including the introduction of a community charge



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