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Why council tax rises will hit the poorest harder

Three quarters of councils are set to increase council tax by 5 per cent in April. But it will cost the poorest more than the wealthiest

council tax

The 5 per cent increase in council tax will arrive as households face financial pressures from all sides. Image: Tara Winstead / Pexels

Council tax is set to rise for millions of people in April with three quarters of local authorities planning to raise rates by the maximum of 5 per cent. This is a move that will hit the poorest hardest.

A survey from the County Councils Network (CCN) found 84 English councils out of the 114 who have published their 2023/24 budget proposals plan to hike up rates by the maximum amount.

Chancellor Jeremy Hunt announced local authorities could raise council tax by 5 per cent in last year’s autumn statement in response to soaring inflation. That includes a total of 2.99 per cent for general council tax and a further 1.99 per cent for the adult social care precept, which is ringfenced for care services.

Previously councils were only able to raise taxes by 2.99 per cent.

But rises come at a time when the cost of living crisis is in full swing. Here’s why council tax rises will hit the poorest hardest – and why councils are raising it.

Council tax is a regressive tax

Council tax is not tied to the current value of a property. It works like this: every residential property is placed into a tax band between A and H. In England properties are grouped based on their values when the banding system was created in 1991. In Wales the groups are based on property values in 2003.

But house prices have risen sharply in the last 30 years. In 1991 the average property cost around £57,000 but by November last year that price was over £294,000, according to Land Registry data.

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And not all areas have experienced growth at the same rate, with prices in London rising at a quicker rate than in the north-east of England. Campaign group Fairer Share has a good example. In Easington, Durham, a family living in a home worth £100,000, pays over 1.4 per cent of their home’s value in council tax every year. This rate is 52 times higher than the 0.03 per cent rate a £6.2m home in Westminster would pay.

Basically, people in lower-value homes end up paying more in proportion to the price of their home than those in higher value homes.

This is unfair, and that’s why some campaigners have called for the council tax system to be reformed.

“Council budgets have been slashed, services are on their knees and local authorities desperately need more money,” said Tax Justice UK executive director Robert Palmer.

“But council tax is a bad tax with poorer people paying more than higher earners. You can pay lower council tax on a millionaire flat in Mayfair than a small house in the north-east of England.

“The government should reform the way we fund local government. At the very least council tax should be more closely tied to the actual value of people’s homes, with newer bands for the most valuable properties to ensure there is a proper connection between council tax and wealth.”

Fairer Share has campaigned for a proportional property tax to replace council tax which would instead opt for a flat rate of 0.48 per cent to be paid on the value of residential properties.

Andrew Dixon, chair and founder of Fairer Share said: “With millions around the country already struggling to get by this winter, they’re now having to pay out even more to plug local funding gaps.

“Council tax is one of our most unfair taxes and these 5 per cent increases will hit the hardest in the poorest areas of the country, sending many into spiralling debts. The concern is that if we don’t make changes soon, neither households nor local authorities will be able to take the strain.”

Find out how much council tax will increase in your area with Fairer Share’s tool.

More people are already struggling to pay their council tax

The cost of living crisis means that people are already struggling to get by.

Surging inflation means the cost of essentials like food and energy bills has risen significantly in recent months, while further price rises are on the cards in the months ahead with the price of broadband, for example, slated to rise by up to 14.4 per cent this spring.

As the council tax rises hit in April, some households renting in social homes will see their rent increase by up to 7 per cent while private renters in parts of the UK have already seen rent rises in recent months.

The CCN said the average household in a Band D rated property will see council tax bills rise by £99 a year – equivalent to £1.91 per week – with the 5 per cent increase, although this will vary across the country.

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The reality is that some households will not be able to keep up with council tax bills in the face of financial pressures from all sides.

There are already signs that people are struggling to pay council tax.

Citizens Advice helped 66,364 people with council tax arrears in 2022, up from 59,533 in the previous year.

Debt charity StepChange reported a 1 per cent increase in the proportion of people asking for help with council tax in December. Just over a third of new clients who contacted StepChange were in council tax arrears.

The most recent government figures show £5bn in council tax was outstanding as of March 2022, some stretching back years. That increased by £540m in 2020/21 alone. 

But councils have little choice

Councils are making the decision on raising council tax in the “most difficult circumstances in decades”, according to CCN vice chair Sam Corcoran.

It’s not just households that are dealing with the cost of living crisis, councils are too. Councils need to find an extra £2.4 billion to meet cost pressures, the Local Government Association (LGA) warned in November.

“With councils facing multi-million funding deficits next year, the alternative to council tax rises would be drastic cuts to frontline services at a time when people at the sharp end of the cost of living crisis need us to be there for them,” said Cllr Corcoran.

“With the financial situation for councils looking extremely tough for the next few years, we will be calling on the chancellor for further help in the March Budget.

Some councils’ financial problems are so severe that they have been given special dispensation to raise council tax by a higher rate: Thurrock and Slough by 10 per cent and Croydon by 15 per cent.

But even a 5 per cent rise will be a struggle for many local authorities to balance budgets and fund local services.

Hampshire County Council faces a £57.7m funding deficit in 2023/24 even with the 5 per cent rise which the authority told the CCN will have to be filled by reserves.

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It’s a similar story in Durham and Chester East which face a £10.2m and £25.4m deficit respectively.

Council tax also goes towards much of the support for low-income households, such as council tax reduction schemes and last year’s £150 rebate, as well as the Household Support Grant providing fuel and food vouchers.

Cllr James Jamieson, LGA chair, said: “We have been clear that council tax has never been the solution to meeting the long-term pressures facing services – particularly high-demand services like adult social care, child protection and homelessness prevention. It also raises different amounts of money in different parts of the country unrelated to need and adds to the financial burden facing households.”

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