Old wine in new bottles can leave a bitter taste. And so it is with tax. Margaret Thatcher abolished the ancient system of property rates because she disliked the idea of a progressive tax in which those who lived in big homes paid more than people in more modest dwellings. Her answer was the flat-rate community charge, where a banker paid exactly the same amount of local tax as a street sweeper.
Mass non-compliance and riots in Trafalgar Square soon demonstrated how irredeemably unpopular Thatcher’s “poll tax” was and the new levy was scrapped in 1991. Thatcher’s successor, John Major, brought in a new property tax system closer to the old rates, which is today’s council tax.
People who live in more expensive homes do pay more under the present system. But they pay a smaller share of their property value each year than those lower down the ladder, so the system is regressive by design. And the other problem is that unless the bands on these kinds of property taxes are regularly updated to reflect the range of house prices, they tend to become more regressive as prices increase. That is exactly what has happened: the council tax has not been re-banded in more than two decades and prices have gone through the roof.
A generation of politicians – and Labour is as much to blame in this as the Tories – have shied away from re-banding the tax for fear of upsetting those wealthy and influential individuals who would have to pay more (even though just as many people living in less expensive homes would benefit). The ridiculous upshot is that the owners of multi-million pound country mansions now pay the same amount of council tax each year as people squeezed into modest suburban semis.
The Coalition has made much of its command in 2010 that local authorities freeze council tax in cash terms. But that has merely made the situation worse by entrenching the perception that those in expensive homes are already paying more than enough.
The Government’s cuts in council tax benefit are, as today’s research shows, making life more difficult for the poorest. But the greater crime here – indeed the root cause of this problem lies in our unreformed property tax system and the abject cowardice of politicians. The answer is a progressive tax on the value of all properties, regularly updated by law. Instead, we seem to be moving, by stealth, back towards a poll tax – and that wine is not going to taste any sweeter the second time around.