Sunday, 25 May 2014

Council Tax Freeze - unintended consequence.

The Tories' Council Tax Freeze was a pure Home-Owner-ist electoral gimmick, of course: vote Tory and we'll reduce taxes on land ownership.

It's nonsense, because the central government has to bribe councils to freeze their council tax with higher grants out of centrally collected taxes; so people think they are "saving" £100 in tax (highly visible Council Tax) but they are not, on average, saving anything because they have to pay an extra £100 in income tax, VAT etc.

(That said, I don't know whether to laud Council Tax for at least being a distant cousin of Land Value Tax or to damn it for being, in practice, a Poll Tax. In the grander scheme of things it is an irrelevance, raising only about 5% of all taxes).

Labour were no better when in power, Tony Blair used to boast that Labour councils had the lowest average Council Tax. This is quite possibly true, but that was not because they spent less, it was because they got much higher grants from the Labour-controlled central government.

On The Sunday Politics today, a Tory MP pointed out that the reason why the Tories had lost control of so many London borough councils to Labour was precisely because of the Council Tax freeze; voters could merrily vote for Labour to run their council, knowing that the Tory central government will protect the from Council Tax increases.


Bayard said...

"they have to pay an extra £100 in income tax, VAT etc."

Well, not really, they will already have paid that extra £100 in income tax, VAT etc, the gov't of the day having set the rates for those taxes at the highest rate that is electorally possible, so in fact it is coming out of either savings elsewhere in the budget, or additional borrowing.

Mark Wadsworth said...

B, this government has no intention of making "savings elsewhere" apart from a few token cuts to keep the Daily Mail crowd happy.

And additional borrowing = higher taxes (in future).

Rich Tee said...

I am a tenant and I have to pay the Council Tax on this property.

Council Tax is a confused hybrid of a property tax and a services tax. It is based on the value of the property which, as a tenant, I do not benefit from personally, yet it is supposed to pay for the council services I use, which is my concern.

Mark Wadsworth said...

RT, it's not a "services tax" particularly.

1. You could count all taxes as "service taxes".

2. Council Tax only pays for a tiny fraction of "local services", the bulk is funded directly by central government.

3. As I said, it is a mix of Poll Tax (about £700 minimum per home) and the balance is a very small property tax of about 0.2% of the selling price, with the property value element capped at about £2,000.

Lola said...

We are back to the view that I share with you that if both sides hate something you can be pretty sure that you are on the money. LVT is such a something.

Mark Wadsworth said...

L, that is a very good rule of thumb indeed :-)

Bayard said...

"And additional borrowing = higher taxes (in future)."

Après les prochaines élections, le déluge. No-one, not the electorate, nor the pols give a stuff what will happen in the future. Nowadays the idea of actually having to pay back what you borrow is becoming pretty laughable.