A review into the organisation and funding of local government has proposed changes be made to council tax bills which could increase costs for the most expensive UK homes as well as businesses, but would give more pensioners a rebate.
Details of the Lyons Inquiry report, produced by Sir Michael Lyons and published this morning, suggest several options the government could consider for the management of local government funding, and which consider whether council tax is still an appropriate method of getting monies from local households or whether a local income tax would be more appropriate.
According to the report, “council tax is not broken” but the key consider should be whether it is fair to effectively charge everyone the similar rates regardless of savings and income.
So Lyons is proposing the government could keep council tax but automate rebates and either introduce a new a higher savings limit for pensioners which means anyone with savings of less than £50,000 would be entitled to a full council tax rebate – apparently lifting another 370,000 pensioners out of the requirement to pay it – or scrap the requirement to pay council tax for all pensioners.
At the same time, however, he has also the government introduce two new higher value bands of properties be introduced beyond Band H for the UK’s most expensive homes, as the proportion of income to property value of people in this bracket is substantially lower than the lower earners.
According to figures compiled in 2003, those with above average to high income tend to have properties worth between £180,000 and £320,000 - said to be worth the equivalent of £900,000 in 2005 – but pay just three times more than the lowest Band A and despite being worth more than nine times more the lowest category of properties.
This band of properties is said to represent just 0.6% of UK properties but would affect homes in areas such as Kensington and Chelsea and could bring in an extra £75m, suggests Lyons.
There are also proposals which would allow local councils to apply a supplementary business rate – albeit it should not be a full-blown reintroduction of business rates – as well as suggestions local government should be given powers to charge extra for domestic waste collection.
At the same time, Lyons has considered whether a local income tax rate might be a fairer of replacing what is effectively a property tax, as it would be applied directly on the income people regularly receive and is again likely to reduce pressure on pensioners.
A survey conducted for the Lyons Enquiry found 33% believe council tax should be entirely replaced with a local tax, while a further 16% believe a part income tax should be implemented.
Lyons notes local income tax taken as a percentage of income would increase costs for only the top four groups of homeowners who currently pay the lowest amount of local tax in proportion to their income.
However, actually shifting to a local income tax system would be complicated and there are specific concerns about the costs on employers as it would require new systems be implemented to assess exactly what each individual earns and could cost employers up to £100m collectively to do so.
All of the proposals set out by Lyons in his 400-page document will now be considered by the government.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Julie Henderson on 020 7034 2679 or email [email protected].IFAonline
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