Wednesday, 22 November 2006

The Chancellor's taxing decisions

Gordon Brown is said to be delaying plans to increase council tax because he’s apparently worried about a “damaging backlash”. He should be. The ideas which seem to be coming from the council tax review are seriously worrying.
I know this topic may not sound particularly sexy, but what happens to our council tax is important, and you should care about it. You should also care that the Chancellor’s apparent response is to delay publishing Sir Michael Lyons’ inquiry into local government finance because he’s worried about a negative reaction? Delaying something is hardly the stuff of strong decision making. Wouldn’t it be more sensible to address what it says and decide whether to implement it?
Sir Michael began his inquiry back in 2004. He has yet to report, but leaked suggestions would increase council tax bills hugely. And that, of course, is on top of the huge increases in council tax since Labour took power in 1997. Average bills have more than doubled – to £1,053.
If changes happen, then some – such as those of us who live in London and the South East - seem more likely than others to suffer.
Many people seem to think that if you live in London and the South East, then you’re incredibly lucky because your house will have greatly increased in value in recent years. But unless we wanted to move out London and the surrounding area completely, I’m not sure that lucky tag is true. All that’s happened is that our houses have moved into a higher stamp duty bracket – thus making moving very difficult – and that the people who used to be able to afford to live in Notting Hill or Belsize Park now have to look further out to be able to afford anything – some are even looking in our humble neck of the woods. And that changes the whole complexion of an area (not always for the best).
Salaries have not doubled or tripled in the last decade, but houses have. So where does that leave us? Stuck where we are, happy to be owning something, but sad that people like us – on reasonable but not huge salaries – can’t afford to move into the area.
And if people like us do want more space, we can’t afford to move, so we add extensions or convert our lofts or old coal cellars (I am fascinated by this as it is going on across the road from where I live, and I am desperate to see the results.) All these additions push our mortgages ever higher, but I shouldn’t complain, because we are lucky to be on the housing ladder (I dread to think how much houses will cost when my children grow up. If property prices continue to increase as they have, I can’t ever see them owning anything).
The council tax review is said to be looking into reassessing council tax bands – and so increasing what we currently pay because our house is obviously worth more than it was when the bands were set. It is also suggested that taxes may be imposed according to the “extras” which the property has, such as those loft conversions. This of course means penalising the extras that many people have added on becomes they can’t afford to move. In fact the government should be thanking these people – they, at least, are not helping fuel the property boom.
Most worryingly, the government is said to be considering a tax which would be a percentage of the value of the house. This may sound ridiculous, but it has already been implemented in Northern Ireland where some people have found that they simply can’t afford to pay the huge increases in their bills.
Why doesn’t anyone seem to realise that the value of your house does not necessarily equate to your disposable wealth? If you are retired and live on a pension, then how on earth are you supposed to find thousands of pounds of money to pay higher council taxes with? Is the government suggesting that people whose houses now happen to be in areas which have rocketed in value, should move?
I find this whole issue really exasperating. We don’t have a great deal of disposable income – mine goes on childcare in any case, but that’s a different story – and if council tax is going to be put on the value of our house, then we are going to have real problems. It’s not even as if we are benefiting from our house being worth a lot! Not unless we move hundreds of miles away – from our family, school and friends.
No wonder Gordon Brown is concerned about a backlash. When the poll tax was scrapped and the council tax implemented, Michael Heseltine said that it should “reflect people’s ability to pay and be seen to be fair”. Is this really true of the council tax? I don’t think so. Perhaps it’s time for a local income tax.

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