Labour council tax overhaul would push up bills by £1,230

Council tax bills would rise by an average of £1,230 for more than four million households in England if Labour were to redraw the method in which the levy is calculated.

An overhaul of the property tax could add hundreds to annual bills – with some facing rises of as much as £4,609, according to an Institute for Fiscal Studies (IFS) analysis of house prices.

Fears of a council tax raid under Labour are growing after a frontbencher implied the system “needs to be changed”.

In a leaked recording, Darren Jones, shadow chief secretary to the Treasury, told a constituency meeting that any party who suggested revaluing council tax bands “had never been elected”.

The Labour frontbencher said he understood people’s “frustration” that the bands were “out-of-date”, hinting at a tax raid on wealthy people’s homes.

Laura Trott, Chief Secretary to the Treasury, said Labour had been caught “saying the quiet part out loud” and would increase taxes on people’s homes, cars and pensions. Labour said it was “scaremongering nonsense.”

Labour MPs have so far contradicted each other over council tax reforms with leader Sir Keir Starmer failing to rule out plans in an interview last month.

Asked whether there would not be an increase in council tax under Labour, the leader told LBC radio: “What I am not going to do is sit here two and a bit weeks before the election and write the budgets for the next five years”.

Shadow chancellor Rachel Reeves has previously voiced her support for changes to council tax, writing in her 2018 pamphlet called the Everyday Economy that the levy was “long overdue a re-evaluation and revision of existing bands”.

Reforms could include a complete overhaul of current council tax bands to bring bills in line with current house prices. The Fairer Share think has also proposed replacing the current system with a “proportional” council tax.

In both scenarios, however, analysis suggests bills would surge for London and Home Counties households.

The IFS analysis found a proportional tax would “narrow the gap in property wealth between owners of high and low-value properties’, but tax bills would rise in 124 local authority areas in England – adding £1,230 to 4.2 million household bills.

Banding would be ditched and tax bills would differ house-to-house, depending on their estimated value.

The bill would be a flat percentage, such as 0.5pc, of a property’s value and it would be uprated annually, to reflect changing values.

For instance, a home worth £350,000 would pay £1,750, but the homeowner would pay £1,857 if the property’s value rose to £375,000.

In London, residents in 15 boroughs would face council tax rises of more than 50pc while average council tax bills would rocket by 410pc in Westminster, rising from £764 to £3,894.

The biggest price increase would come in Kensington and Chelsea, where average council tax would shoot from £1,286 to £5,894, analysis found.

The IFS calculations are based on 2019 estimates, meaning the values would be even higher, as house prices have risen by £51,000 since 2019, according to the Land Registry.

The overhaul, backed by Torsten Bell, the Labour candidate for Swansea West, and chief executive of charity the Resolution Foundation, would however benefit those in the north and south west.

Hull would be the biggest beneficiary, with average council tax bills plummeting by 60pc, followed by Stoke (-57pc), Blackpool (-56pc) and Sunderland (-56pc). Across most of the North and Midlands, average bills would fall by more than a fifth.

New bands to match current house prices

Reevaluating bands could also be on the cards. In England, council tax bands are based on 1991 property values, despite house prices rising eightfold in some areas.

In Wales, Labour has already pledged to reevaluate council tax with higher bands and higher rates to address “property wealth” and “rebalance” the current system.

The shake-up, which is due to come into force in 2028, has been hailed by Sir Keir as “blueprint” for “what Labour can do across the UK”.

But the IFS warned similar reform in England would drag millions of households in London and the South East into higher tax bands.

Re-evaluating the bands to current house prices would spark bills to rise in 119 of the 325 local authority areas in England,the think tank said.

The average household would see their tax bill rise by £82, but those in 32 local authorities would suffer increases of more than £100.

For example, Band D covers properties valued between £68,001 to £88,000 in 1991, but under a rebanding, the IFS said this would cover homes worth between £301,811 and £415,120.

In Hackney, for example, only 15pc of properties currently fall into the four highest council tax bands of E, G, F and H. But if property values were updated, that figure would rise to 68pc.

The average household’s bill in Hackney would jump by 45pc (+£411).

Properties in the north, however, would see bills fall.

Households in Fylde would see average council tax fall by £208. South Ribble, Hambleton, Ribble Valley and Wyre would be the other districts to make the biggest tax savings.

Current banding is a bone of contention among a number of householders. Between April 2022 and March last year, 51,000 people challenged their council tax band.

Two-thirds of the appeals failed, but 28pc were successful in securing a reduction, according to government data.

The IFS spokesman called for a fairer council tax system.

A spokesman said: “We wouldn’t tax people based on the relative pay of their jobs 33 years ago – but that is exactly what we do with their council tax.

“As a result, around half or more of properties are effectively in the wrong band – those in the North and Midlands often in too high a band, and paying too much, while those in London and the Home Counties are often in too low a band and paying too little.

“Revaluing properties – and updating bands to account for average house price growth – need not change how much revenue is raised. But by redistributing bills to reflect circumstances now rather than a third of a century ago, it would make the system fairer.”

The Labour Party was approached for comment.

This article was first published on 18 June.