Lib Dems plotting council tax hike for second homes

Owners of weekend bolt-holes accused of being 'subsidised' by the poor while local services suffer

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Owners of second homes could be stripped of their council tax discount under Liberal Democrat plans to raise millions of pounds for town halls.

Danny Alexander, the Lib Dem Chief Secretary to the Treasury, is among ministers who back ending rules that force local authorities to cut bills by 10 to 50 per cent for owners of weekend bolt-holes. In a Commons motion, the Lib Dem president, Tim Farron, suggested the cost of providing the discount could be spent on local services or cutting council tax bills for all.

While the tax-raising powers would chime with the Conservatives' localism agenda, it risks angering thousands of traditional Tory supporters who own holiday homes.

There are currently 246,000 second homes registered for a discount in England, of which more than 40 per cent are larger properties in Band D or higher. Around 50 councils allow second-home owners to pay just half the tax of locals, though since 2004 some 85 councils have reduced their discounts from 50 per cent to the minimum 10 per cent.

Deep cuts are being made to central government funding as part of the coalition's spending review, with an 11 per cent reduction ordered for next year alone. Town halls are also under pressure not to increase council tax across the board to fulfil a Tory pledge of a freeze in bills for two years.

But the threat to services posed by the cuts has led to calls for the second-home discount to be scrapped, as it has been in Wales. Councils could be missing out on more than £50m a year, while countryside campaigners have long warned of the impact on villages where services such as schools and post offices struggle to survive without permanent residents.

Mr Farron, whose Cumbrian constituency has more than 3,800 second homes, claims their owners are being bankrolled by poorer local residents. He said: "People living on council estates, maybe working on the minimum wage, are subsidising the council tax of a barrister from Manchester with a second home in the countryside. We are having to put up taxes, scrap certain benefits... it is a case of social justice."

In Cornwall, for example, there are 14,000 second homes receiving a 10 per cut in bills. If this were abolished, it could raise £2m a year. In the meantime, the county's unitary authority is taking radical action to meet the cuts, including a fire sale of assets such as car parks and disused toilet blocks.

Durham County Council offers a 50 per cent discount to almost 2,000 second-home owners, which could be costing it £1.5m a year, while Suffolk Coastal District Council could be missing out on £2m.

A review of council powers by the Department for Communities and Local Government, due in the new year, is to consider giving councils the power to charge second-home owners the full rate of council tax. But some Lib Dems want to go even further, and stand by their manifesto commitment to "give local authorities the power to set higher council tax rates for second homes and the option to require specific planning permission for new second homes, in areas where the number of such homes is threatening the viability of a community".

Before the election, Lewes District Council, in East Sussex, and Islington Council, in north London, called for legislation to allow councils to "set increased council tax rates for properties kept solely as second homes or used as holiday lets". This was considered by the Labour government but rejected before polling day.

In June, the coalition increased capital gains tax paid on profits made from asset sales such as shares and second homes to 28 per cent for top-rate taxpayers in a move that David Cameron said was in part done to take aim at people who buy holiday homes as an investment. "There is a very big difference between the capital gains someone pays on, say, a second home and actual investment in business assets," the Prime Minister said in May.