New data finds that the poorest households in Britain are spending an increasingly bigger share of their income on council tax. Comparisons to the poll tax that was crucial in Prime Minister Margaret Thatcher’s demise have been made about this development.
The research conducted by the Resolution Foundation shows that in 2020-2021, the poorest fifth of households paid 4.8% of their income on council tax in England, Wales, and Scotland, as well as domestic rates in Northern Ireland. This is a notable increase from their 2.9% payment in 2002–2003.
Why is Council Tax Seen as a Problem?
Applied differently in each of the four countries, council tax is one of the few taxes on wealth imposed in the UK. Economists have long criticized the system, especially because it is based on property values from 1991, despite the significant shifts in wealth distribution over the subsequent three decades.
While Scotland instituted higher rates for more expensive properties in 2017, Wales has updated its system using 2003 property values. Northern Ireland keeps applying a domestic rates system that dates back to council tax. Despite these modifications, critics believe the tax remains fundamentally faulty.
The “regressive” character of the council tax—that is, poorer households pay a more proportion of their income than more affluent households—is underlined by the Resolution Foundation Indeed, the poorest fifth of households pay three times more of their income—4.8%—on council tax than the richest fifth, who pay just 1.5%.
What effects on households did the abolition of council tax benefit?
The rise in the share of income paid towards council tax can be attributed, in part, to the abolition of council tax benefit in 2013 under the Conservative-Liberal Democrat coalition. Furthermore adding to the increasing load on the poorest households is the slow elimination of rebates in different spheres.
According to the Resolution Foundation, the increase in council tax payments has “slowly recreated the issues that undid the poll tax.” In fact, some believe that the increased financial hardship on poorer families is reminiscent of the controversial poll tax established by Margaret Thatcher.
What Was the Poll Tax and How Did it Contribute to Thatcher's Downfall?
The poll tax, officially known as the community charge, was introduced by Thatcher in 1989 and levied a flat rate on every adult in the country. This tax, which was intended to fund local government services, replaced domestic rates that had required homeowners of expensive properties to pay more.
Widely unpopular and cause for public demonstrations including a riot in Trafalgar Square was the poll tax. Margaret Thatcher’s leadership was seriously undermined by public reaction against the tax, which resulted in her 1990 resignation. As a compromise, John Major’s government swapped the poll tax for the current council tax system in 1993.
How Does Council Tax Compare to Other Taxes?
“Council tax is consuming a larger share of poor families’ household budgets, who are spending almost as much on these bills as they pay in income tax,” said Resolve Foundation economist Lalitha Try. This horribly conceived fee increasingly resembles the very thing it was meant to eliminate – the feared poll tax.”
Is there scrutiny of the Council Tax System?
Given several English councils have been declared bankrupt, the council tax system has come under more examination recently. Rising social care needs have put further pressure on local governments, forcing them to spend more on services, which in turn has resulted in higher council tax bills for residents.
What Can Be DaWhat Does the Future Hold for Council Tax Rates?one to Address This Issue?
The Resolution Foundation warns that this trend of council tax taking up a bigger share of household income may continue. In fact, the think tank suggests that basic council tax bills could rise by as much as 4.99% in England over the coming year. Apart from Lib Dem-run Windsor, Maidenhead, and Somerset, six councils—including Labour-run Bradford, Newham, and Trafford—have been authorised to raise their fees by up to 9.99%.
This increased burden on the poorest households emphasizes longstanding concerns over the fairness and sustainability of the council tax system in its current form. Many homes are finding it difficult to handle the growing expenses given higher rates and less advantages. The Resolution Foundation’s report urges for reform to address these growing inequities, which may further degrade the credibility of the council tax system.
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