Sunday, 11 August 2013

JRF; "Struggling to pay Council Tax: New perspectives on the local taxation debate"

I've only just stumbled across this fine research by the Joseph Rowntree Foundation, it's from 2006 but none of it will have changed much.

To sum up:

It is estimated that over two million households struggle to pay council tax each year in England.

Those struggling to pay are predominantly low-income households in low-value properties, not people in high-value properties (see Table 1 and Figure 1). These conclusions are based on the following findings...

* It is estimated that 5,740,833 households in Britain have a low income and live in bands A-C (including 2,898,888 pensioner households).

* It is estimated that 181,450 households in Britain have a low income and live in bands F-H (including 101,008 pensioner households).

They then provide more detailed figures, which can be presented as follows:

As you can clearly see, there is a very strong correlation between household income and the value of the house they live in, taking Council Tax Bands as a proxy for home values, for example:

* over half of low or median income households are in Band A or Band B homes,
* two-thirds of average income households are in Band A, B or C homes,
* nearly half of high earners are in Band E to H/I homes,

and similarly
* half of households in Band A homes are low income households
* half of households in Band B and C homes are low or median income households
* half of households in Band E to G homes are high income households
* four-fifths of people in Band H/I homes are high income households.

and finally, only two per cent of all households are on low incomes but live in Band E to H/I homes, and slightly over half of these are pensioners, in other words, the famed "asset rich, cash poor, Poor Widows In Mansions" used as a human shield by the opponents of tax reform represent one per cent of the population.

I've explained the significance of the bold lines over at the KAALVTN blog.


Bayard said...

Is there any indication of what they've spent their money on (assuming CT is at the end of the queue)?

Mark Wadsworth said...

B, aha, are you trying to drive a wedge between "hard working pensioners being clobbered by council tax" and "feckless scroungers who spent it all on fags, booze, scratch cards and flat screen TVs"?

Ben Jamin' said...

I'd be interested to see the how the definition of low, median, average and high, actually translates into incomes?

I'm slightly surprised that so many high earners fall into bands C-F, as it's quite high.

If there was a re-evaluation, would this group shift up a couple of notches?

I feel it they would, as it is Central London 1-2 bedroom properties that have gained most in value, and they are just the sort of property where young professionals live.

Mark Wadsworth said...

BJ, you'll have to read up the original JRF blurb to find out what it means in terms of incomes. I was just doing simple better off/worse off predictions.

If there was a revaluation, then the correlation between "Council Tax Band" and "income level" would almost certainly be higher.

As you suggest, the natural tendendy is for the two to be very strong at the time of purchase*, but then it tends to diverge more and more the longer an "owner" stays in the same home.

* if you take recent purchasers who all max out with four or five times loan-to-income, then the correlation between "house price" and "income" is nearly 100%. But with older Baby Boomers there is much less correlation (house price rockets, income stays the same or goes down).