The current council tax system in London is unfair. The tax could be a sustainable means of funding local government services while also functioning as a progressive tax on property wealth. However, at present it is highly regressive in relation to property value as well as representing an unduly large burden in terms of income for poorer Londoners. It is economically inefficient particularly because of its banding system, reliance on considerably outdated property prices and the inconsistencies between it, and commercial property taxation. Furthermore, it is increasingly unsustainable as a source of local government finance, a trend which is only set to continue.
In this paper, we set out the case for change of the council tax system in London. We outline some of the views of those who live in the capital and pay council tax in the system as it is, and how they would like to see it change. We also set out some key lessons from abroad on how our system compares.
We propose major reform of the system in three stages. First, the devolution of council tax to the capital. Second, we argue for some immediate reforms to the system to protect the poorest Londoners, who are being hit by a tax that increasingly resembles the poll tax. Third, in the longer term, we argue for the replacement of the existing banding system with a proportional property tax, with one rate, to be applied across London, which should be calculated on up-to-date property values. Finally, we set out some key strategies to help overcome some of the difficult issues and barriers to reform.
Such a system would be fairer, more efficient, and in addition could be used to raise revenues in a way that is fairer and more politically acceptable than the current system.