Why council tax bills just don't add up

Here's some welcome news you may not have been expecting. Your council tax bill is more likely to fall than it is to rise in April 2007, when the government completes its re-banding of every property in England. Research from Halifax Bank shows more homes will move down a council tax band in two years' time than up.

The bank is assuming the government will raise the value of each band by 186 per cent, the amount by which house prices have increased since council tax replaced the poll tax in 1991. Since more local authorities in England have recorded house price inflation below the average figure than above, the re-banding process should produce more winners than losers.

Don't start spending your savings just yet. The government won't announce how it will calculate the re-bandings until early next year. But Halifax's research suggests homeowners in the North-west and the West Midlands, where house price inflation has been lower, are more likely to move into a lower tax band. Homes in the North-east and the South-west are more likely to move up. This research once again exposes the fundamental flaw that makes council tax so unfair. The disposable incomes of people in the North-east have not risen at a faster rate than those of their friends in the North-west over the past 15 years. Yet they face tax increases, while bills will fall elsewhere.

The trouble with council tax is your bill is not in any way based on your ability to pay. If you live in a property that has done particularly well from house price inflation, you'll lose out, whether you're a City slicker or a cash-strapped single mum. Unless you're prepared to sell up and move to a smaller home - the only way to realise your house price gains - you'll have to find extra cash.

Some groups are particularly hard hit. The incomes of pensioners, for example, rise in line with prices each year, rather than earnings which tend to increase more quickly. So they find council tax increases tough to cope with.

It's not surprising that council tax is a mess when you remember that John Major introduced the current system in a rush to replace the tremendously unpopular poll tax so closely associated with the demise of Margaret Thatcher. But it is bizarre that a decade-and-a-half later, and despite a change in government, we're stuck with the same unsatisfactory system.

The local income tax system proposed by the Liberal Democrats at the last election has so far failed to capture widespread support. There is some evidence that such a system would lead to higher tax bills for sizeable numbers of people. But that's no reason to reject it out of hand - at least bills would be based on ability to pay them.

Icstis, the watchdog that polices the premium-rate telephone market, must raise its game if it is to prevent people being caught out by expensive mobile phone charges.

The regulator is receiving an increasing number of complaints about the Crazy Frog ringtones. Jamster, the company that sells the ringtones, is a respectable business, rather than a rogue operator, but many parents say their children have not understood what downloads will eventually cost them.

In theory, the Crazy Frog services are for over-16s only - Jamster's website makes that clear. Yet the cartoon character used to market the ringtones is popular with children and has proved to be a useful recruiting tool.

Icstis is set to give its verdict on the Crazy Frog complaints next month. But we also need much clearer - and stronger - rules on how companies in this sector should operate.

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