Austerity has stripped local services to the bone – and those on the lowest incomes will be forced to pay for it
“The most boring and complicated subject in all of public life,” declared William Waldegrave, former minister and an architect of the fateful poll tax, when speaking of local government finance. But this is misleading: the consequences of local government austerity are anything but boring for those on the lowest incomes. The design of the council tax system – and recent reforms to it – hits the poorest hardest. Here’s why.
Since 2010, the central government grant to local government has been cut by almost 60%. This has had a devastating impact on local public services with spending falling in real terms by nearly one-fifth (excluding education and public health) since the start of the decade. So it’s little surprise that council taxpayers in England face substantial increases in their bills, with nearly all councils set to increase them this April.
Council tax was introduced in 1993 as a pragmatic fudge after the political disaster of the poll tax, which forced the poorest to contribute more than they had under the old rates system. Mass protests and riots ensued, as did a widespread campaign of nonpayment. Within seven months of it being introduced in England, Margaret Thatcher was forced to resign and her successor, John Major, quickly announced its abolition and replacement by the council tax.
Since then the council tax system has been left largely unreformed. It is still based on property values from 1 April 1991. As a consequence of this, and of regional variations in house price growth and its original design, council tax has become increasingly unfair. The cheaper your property, the more you are likely to pay as a proportion of its value.
What’s more, the council tax now increasingly resembles the unpopular poll tax which it replaced. The devolution of council tax benefit in 2013, together with the cut in the funding provided for it, means that people on the very lowest incomes are paying council tax for the first time since the poll tax – and bills are rising.
Research by the New Policy Institute found that 90% of councils in England have made changes to their schemes – with nearly a quarter asking working-age, low-income households to make a minimum payment of 20% and another fifth asking for more than 20%. For many, this is simply a return to the poll tax.
Our research at the Institute for Public Policy Research, focused on London, found that the burden of council tax on London’s poorest households is more than six times greater than those on the highest incomes – and that was before the latest round of increases. Nationally, the Institute for Fiscal Studies has calculated that 1.4 million additional households now have to pay council tax compared with the pre-2013 system. Around 60% pay more than £100, a third pay more than £200 and nearly one in 10 pay more than £300.
With local services creaking under the pressure of austerity imposed upon them by central government, local councils often have no option but to increase council tax. However, the extra revenue from this and other sources is in itself still not enough to make up for funding reductions and growing demand.
Essential local services from children’s services to social care need more money – the funding gap for 2019-20 alone is estimated to be at least £3.2bn. But asking the poorest in society to shoulder the burden through increasing council tax is not the answer. Yet, incredibly, the government’s Fair Funding Review, which has spent the last 18 months looking at the local government finance system, didn’t examine the structure of the council tax system.
Council tax, like the poll tax before it, is punishing those on the lowest incomes, and it’s time for an overhaul. In the short term, the government should use general taxation to increase central funding for local government to properly support local services and take pressure off the council tax system. But in the long term, the replacement of council tax with a progressive property tax, accompanied by an effective benefit system that protects those on the very lowest incomes, or even a new land value tax, must be on the table.
In his memoirs, Waldegrave said that through the poll tax he had made this “most tedious of subjects so interesting that it became the cause of widespread riots up and down the land and, one cause of the defeat of a great prime minister”. It’s time we all revived our interest in a subject that is, once more, anything but tedious for the poorest in society.