Poorest Londoners pay 6 times more in council tax than the highest earners as a proportion of income

Poorest Londoners pay 6 times more in council tax than the highest earners as a proportion of income. IPPR report sets out the case for reform of the council tax system as it becomes increasingly unsustainable. The burden of council tax for the poorest Londoners is more than six times higher than for the richest (8.1% for the lowest decile compared with 1.3% for the highest decile) and has worsened over time, according to a new report from IPPR, the progressive policy think tank.

These figures represent the burden of council tax on London’s poorest, taking account of those who are eligible for council tax and have taken it up as well as those who haven’t. The report argues that the council tax system takes too little account of ability to pay and is therefore unfair. Even if all of those eligible for council tax support took it up, the burden on London’s poorest would still be more than three times higher than for those on the highest incomes.

The research finds that the poor take-up of council tax support is partly responsible for this excessive burden. It also finds that the devolution of council tax benefit and the associated cut to its funding – is further exacerbating the regressive impact of the system on London’s poorest.

The analysis shows that council tax has become substantially more regressive with regard to income over time - accounting for full take-up of council tax benefit, the burden on those on the lowest incomes under the current system (4.5 per cent) is more than 22 times what it was in the early 1990s (0.2 per cent).

The IPPR research, which is focused on London, but with wider relevance for the whole system across England, shows how council tax has become increasingly regressive with regard to property values – the cheaper a property, the more you are likely to pay as a proportion of your property value. As far as property values are a proxy for wealth, council tax is not progressive. A household living in a Band A property in London would pay, on average, over 0.5% of its value, compared to a household in a Band H property which would pay just over 0.1%.

The report also argues that with the local government finance system becoming increasingly unsustainable, council tax must be reformed as part of the government’s current ‘Fairer Funding Review’. The report also shows that there is appetite amongst Londoners for reform.

The report further finds:

·      Since the reforms to council tax support, there appears to have been a steady reduction in the number of people claiming council tax reduction in London, dropping from 824,000 claimants in March 2013 to 657,000 in March 2017. This is likely to be a result of a reduction in eligibility but also a fall in those taking it up even if they are eligible due to the increasing complexity of multiple schemes.

·      London’s local authorities are becoming increasingly dependent on council tax as part of their core spending power. In 2015/16, the average council tax contribution was 40%, but this is set to rise to 52% by 2019/20. The average contribution is markedly higher for Outer London authorities.

Council tax is a poor tax. It hits the poorest hardest, it is increasingly not fit for purpose and is in dire need of reform. “It is inefficient because it relies on property values from nearly 30 years ago and it is increasingly regressive with regard to property value. The only recent reform of any significance – the devolution and cut to council tax support – has increased the burden on the poorest. “With some local councils and services at breaking point due to funding cuts and rising demand, it is essential that the government revisits reform of the council tax system. The obvious way to do this is as part of its ‘Fairer Funding Review’ of local government finance.
Luke Murphy, IPPR Associate Director for Environment, Housing and Infrastructure