The middle of the line

Today’s announcement from the Government was that they would ‘delay’ a Council Tax revaluation for England until after the next election. Of course, it turns out that they weren’t actually doing anything that Labour hadn’t promised to do – the manifesto for the 2010 election stated explicitly that no revaluation would happen in this Parliament if Labour won.

But Pickles is not averse to talking total arse for political gain, and the Tories would have wanted to do something after recent polls saw them slipping and Labour coming level, before the leader is chosen and the Conference starts. “New Politics” seems to be the same old spin, huh?

There were scare stories a few years ago that a revaluation would happen, with the media (mainly the hysterical right-wing rags like the Mail and Express) concentrating only on the losers. A revaluation would have been overall neutral, so what would have happened is that some people would go up a band, and others would go down a band. Areas which saw more properties go up would balance that with a slightly lower base rate, and areas which saw more properties go down would adjust upwards. Wales did one in 2005 but it as it added two higher bands is was not neutral. So it’s not actually directly comparable.

The argument against a revaluation is actually pretty weak. You can’t have an effective tax based on property values if those values are out of date. Pickles claims that 1992 was pretty similar to 2010 (well, they were both times when we were just coming out of a recession), but there will have been some large variations in the increase in value of houses when you look at local areas.

Yes, people who extended their houses may feel aggrieved to see them go up a band (or even two). But why do people extend their houses? Often it’s because they need to accommodate more people. Even so, the vast majority of the increase in value of houses over the past 18 years will not have been as a result of home improvements.

Anyway, today’s announcement is pure cowardice in the face of the middle classes. And so was Labour’s manifesto pledge to postpone a revaluation. But it doesn’t stop there…

Council Tax itself was a fudge introduced out of a government’s fear. The Tories had brought in the Community Charge (or “Poll Tax”) in 1989/90, and seen it become a focus for anti-government rage and one of the catalysts for Thatcher’s departure. So Major needed to do something about it, and Michael Heseltine was given the job of coming up with a quick replacement.

The problem was that to go back to a property value basis would see the very rich getting clobbered again. But if the rich didn’t pay much, the middle-lower bands would still be paying a fair whack and that was the main complaint about Poll Tax. So two things were done. Firstly, the maximum rate was set quite low using the threshold for the top band. Secondly, VAT was increased from 15% to 17.5% to subsidise it. Of course VAT is regressive and tends to affect those on lower income more, but it’s less noticeable.

Going back a little further, before the Poll Tax we had local Rates. Rates were a proper property value tax, being a fraction of the value of the house. Rates had been around since 1601, and probably much earlier in some areas, and had been the basis for who was allowed to vote until 1918. They were not a bad way of having a local tax to pay for council responsibilities, but of course they were resented by people in big houses.

And what happened to the Rates in the end? Well, one excuse for the Poll Tax was that the rates had not been revalued for years. Which they hadn’t been, but simply because governments had been too scared to set them up.

Is there a way to deal with this situation? Well, one way would be to institute regular and immovable revaluations so that politicians can’t put them off when the polls look bad.

Another would be to take the system and reform it properly. Council Tax was a fudge to start with, and because it was subsidised from VAT it reduced the link between local government and local taxation.

What would be a good way? Well, there’s always Land Tax. Adam Smith (hero of the free-marketeers) and Thomas Paine (hero of the liberal-left) both advocated a Land Tax – indeed they suggested that this be the only tax. As it would be a tax on the value of the land, a home improvements would have little effect (because the land underneath would be pretty much the same). It would also be not far off what Council Tax is – probably lower for most people – because it would also fall upon all other landowners.

Land Tax would also discourage dodgy practices, like supermarket chains buying up land to stop competitors from being able to build. It would encourage people to use land for something productive, rather than let it go fallow, which would spur redevelopment. It needn’t affect agriculture much because land values for farming are actually quite low.

But at the moment, I don’t think there are many people in power who would be brave enough to take such a step.