Monday 26 September 2011

Why stop at Council Tax Band K?

The Evening Standard summarises an article from ConHome:

Mr Browne dismissed Business Secretary Vince Cable's idea of a land tax as "cloud cuckoo land" and unworkable.

He told ConservativeHome website: "Far better would be to introduce higher bands of council tax above band H. Introduce a band I for properties over £500,000, a band J for properties over £1 million - even a band K for properties over £2 million. It would be easy to introduce, simple to collect, wouldn't complicate our tax system, and will cause far fewer hard luck stories... It is patently unfair that a family with a three-bed semi in Manchester incur the same band H council tax as a billionaire industrialist in his £100 million palace in west London."


One of the nasty things about Council Tax is the fact that the bands are so wide, i.e. homes at the top of Band C were worth 40% more than those at the bottom thereof (as at April 1991), in Bands D to H the gaps are from 31% to 45%, and Band I is unlimited (this is for homes worth > £424,000 twenty years ago, surely there must have been a few even then?). Thus the ratio between the cheapest homes in Band I and the most expensive in Band A is just under ten-to-one.

UPDATE: CM in the comments reminds me that Band I only applies in Wales, so the ratio in England is only eight-to-one. Which would be a bit like capping the income tax payable by the highest paid footballer in the Premier League at eight times the amount payable by a sales girl in the ticket office or something.

Excel tells us that if we had twenty six Bands, from Band A to Band Z, and a 'band width' of just over 20%, the ratio between the bottom of Band Z and the bottom of Band A would be a hundred-to-one (=1.2023^25). Whether we rank homes by selling price, underlying land value, total rental value, site-only rental value or any combination thereof (interpolating between them is quite easy) is neither here nor (as is what we do with homes which fall below the bottom of Band A), but having more, narrower Bands seems to me to be a much better way of doing it.

For sake of argument, Council Tax in new Band A would be £300 a year and in new Band Z it would be £30,000; or it might be £100-to-£10,000 - depending on how much you need to raise to replace other taxes and how many homes fall into each Band etc.
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See also last week's Spectator: Why mansion tax makes sense, if only for the excruciating Killer Arguments Against LVT, Not.

4 comments:

Snarfangel said...

>See also last week's Spectator: Why mansion tax makes sense, if only for the excruciating Killer Arguments Against LVT, Not.

Gah! Why do you do that? You know those give me a headache.

(Just kidding, it's really rather entertaining.)

Mark Wadsworth said...

Snarf, the choicest KLN is by City Worker in the comments to the ES article, he manages to totally contradict himself in every single sentence.

Christine M said...

Of course as yet there is no band I in England.
It is quite feasible that the person living in a band H in Manchester is also a billionaire. Move this property to London and it would proibably fall into the £1,000,000 bracket.
The value of your home is not always an indication of your wealth

Mark Wadsworth said...

CM: "The value of your home is not always an indication of your wealth"

Quite correct. So a tax on the value of a home can't possibly be a tax on the owner's wealth, can it? Ergo, a tax on land values is not a tax on wealth.

So all these Home-Owner-Ists who bracket in LVT or higher band Council Tax with 'wealth taxes' (such as true taxes on wealth, such as income tax, VAT, via CGT, all the way to Inheritance Tax) are talking out of the back of their necks.