Friday, 15 May 2020

Council Tax non-logic

Home-Owner-Ist logic says that "council tax pays for local services", which is why there is a single person's discount and many councils offer discounts for second homes and empty homes (unused, derelict or being refurbished).

Fair enough.

On the other hand, a few years ago, Cornwall decided that leaving homes empty is a waste of housing, so imposes a council tax surcharge of 50% on them and also scrapped the second home discount because locals are being driven away. A few years after that, the Welsh Assembly decided enough was enough and allows local councils to impose a surcharge of up to 100% on empty homes and second homes.

So we have two entirely opposite policies for the same factual situation.

There is no need for a Single Person's Discount. By and large, they live in (or should be living in) smaller homes with a lower Council Tax bill. Families will be in a larger home and pay more Council Tax anyway.

What is the fundamental difference between:
a) a single person owns a home with some spare bedrooms in the same house (and gets a discount)
b) a single person lives in a flat and owns a second home somewhere else with some spare bedrooms (for which some councils give a discount and others impose a surcharge)?

Or, taking this to extremes (Bayard's real life example), a single person lives in a house and gets a 25% Single Person's Discount on the whole thing. If he converts his house into two flats, he only gets the 25% discount on the flat he lives in and has to pay (up to) double on the other one.

Far better and consistent to have Land Value Tax at a flat rate on everything. If one household owns a house worth £300,000, they would pay the much same amount of tax as another household which lives in a £200,000 house and owns a £100,000 holiday home. And I see absolutely no reason why one household should pay more (or less) than the other one.


Rich Tee said...

If he rents out the other flat then he can make his tenants pay the Council Tax instead. I certainly do on my rented flat.

But Council Tax has always been a contradiction. The rates were supposed to be replaced by the Community Charge, but that was abolished as well and we got this compromise that doesn't stand up to any logical scrutiny.

KJP said...

But LVT is specifically a tax on land value not the value of the land plus anything built upon it. Assume the three houses you mention cost much the same to build; let’s say £95k. So, £300k house has a land value of £205k, £200k house £105k and £100k just £5k: holiday homes are often in remote, rural low land value areas. So, household 1 has a LVT based on £205k and household 2 based on £110k; so nowhere equal.

Andrew Carey said...

Yes, a LVT removes the contradictions and perverse incentives. I really dislike the one where anyone with any eye to council finances thinks 20 rabbit hutches ( all Band A ) generates more income than two mansions ( both Band H ) for the same total land area and value of the housing. So the incentive is to approve hutches, and vote down palaces.

Bayard said...

LVT doesn't solve the problem of the two types of location value: in the area where I live, there is location value arising from the fact that it is a beautiful part of the coast and there is the usual location value arising from the availability of employment and local services. People who are looking for a holiday home are interested in the first and people who live here all the year round are looking at the second. The second homers are able to set a greater value to their location value than the natives, thus pricing the natives out of any half-decent housing, LVT or no LVT. This was no less of a problem under "LVT lite" from WWII to the Thatcher years.

Mark Wadsworth said...

RT, yes, the legal obligation is then on tenant to pay. But what if our hero decides he is sick of tenants and chucks them out?

KJP, purist LVT is indeed not set as a % of selling prices but asa a % of site premium/rental value. But as an approximation, selling prices will do. In my example, the actual build value is one-third in each case, so it all cancels out nicely.

AC, wel, yes and no. Regardless of taxes, in high value areas, the twenty small homes are more efficient use than two large homes with large gardens. That's why towns look like that.

B, the dual value thing is a problem with no simple answer. Maybe in those areas, it's just a straight question of building more homes? Build the holiday homes overlooking the coast and then workers' homes nearer where the jobs are. There is a limited number of people who want to own a 'holiday cottage by the sea' and the UK has a lot of coastline, once all the would be second homers have got one, the locals get the extras.

Derek said...

On the dual value thing, if everyone receives a Personal Allowance (or a Citizen's Dividend) then with LVT second homes become relatively more expensive to keep. So people wanting to buy a first home in the area would be better able to compete with non-residents wanting a second home. Not a perfect solution but every little helps.

Mark Wadsworth said...

D, yes :-)

Bayard said...

Mark, yes that would be a solution, but then you would get even more ghost villages during the winter. OTOH, on the grounds that the second homers are getting more location value, you could charge them more location value tax.

Mark Wadsworth said...

B, if it's a village with half locals and half holiday homes, that is depressing the locals out of season.

But if they could segregate them somehow into

a) proper towns and villages for locals occupied all year round, and
b) holiday homes villages, occupied mainly in summer and completely empty out of season...

... then it wouldn't be such an issue. Drive past an empty caravan park in winter, so what if it's empty? It's not like having empty houses to the left and right of you.

mombers said...

"council tax pays for local services" - council tax is only ~5% of total tax and an even smaller proportion of gvmt spending due to deficits, so not really a useful concept from the start.

Giving discounts on tax on the basis of supposed use is also bonkers. I don't draw a state pension, or live in a care home, and neither do my parents. Why should I pay anything for these? Childless people can try make the same argument but except for the unlucky few who die young, everyone is entitled to a state education, NHS treatment and other children's youth public services and the vast majority take it up. On the other hand lots of people die before state pension age and very few end up in care homes. Taxes are not use charges.

Mark Wadsworth said...

M, aha, that's the clever bit.

For the claim to make sense, you have to define "local services" very narrowly... so it excludes the big expensive stuff like local schools, local hospital, prisons and court system, national roads. Once you've excluded most things, you are left with a few tiny items like refuse collection, local roads and libraries, which add up to what C Tax brings in.