Reeves urged to raise council tax in £5bn shake-up

Rachel Reeves could raise billions by shaking up the “indefensible” council tax system, a tax expert and Labour party member has said.

Dan Neidle, founder of campaign group Tax Policy Associates (TPA), urged the Government to tweak the system so homeowners whose properties are worth over £2m pay more.

But the proposal would force Labour to backtrack on its election campaign promise to not touch council tax bands.

It would also be the first change to the system in over three decades and would hit the owners of over 100,000 properties with thousands of pounds in extra bills.

Mr Neidle estimated the move could raise between £1bn and £5bn.

An English property’s council tax valuation is currently based on the price it would have sold for in 1991. There are nine bands and they have not been reevaluated since.

The amount charged per band is set by local councils, which has sparked complaints the system is unfair. Homeowners in Blackpool, where many areas are deprived, currently pay around 1.5 times as much in council tax as those in Kensington and Chelsea.

Mr Neidle, a Labour party member and a member of its National Constitutional Committee, urged the Chancellor to address these discrepancies.

Writing on the TPA website, he said: “It’s indefensible that an average property in Blackpool pays more council tax than a £100m penthouse in Knightsbridge. The obvious answer is to ‘uncap’ council tax so that it bears more relation to the value of the property – either by adding more bands, or applying say 0.5pc to all property value over £2m.

“The argument seems compelling for any government, and particularly a Labour government. And whilst Labour promised not to change the council tax bands, that was in the context of revaluation, not adding more bands at the top.”

In the current system, all properties over £320,000 attract the same level of council tax. However, under Mr Neidle’s first proposal, there would be additional bands and higher valued properties would pay incrementally more.

Under the second proposal, multi-million pound houses would attract an annual charge of 0.5pc of their value over £2m. This would mean a house worth £4m would start receiving an annual bill of £10,000.

This is double the country’s current highest rate of £4,962, which is charged in Rutland.

According to Rightmove, there are around 120,000 homes in England worth £2m or more.

During Labour’s election campaign, there was speculation that the party would consider changing council tax bands.

Ms Reeves previously voiced support for making changes, writing in her 2018 Everyday Economy pamphlet that council tax was “long overdue a re-evaluation and revision of existing bands”.

In June, then-shadow paymaster general, Jonathan Ashworth, said the party was promising not to change council tax bands. However, in July, a leaked recording revealed that Darren Jones, then-shadow chief secretary to the Treasury, had said the “whole system needs to be changed”.

Since winning the election, the Government has said little on council tax banding. However, the Treasury has denied that the single person council tax discount, which offers 25pc off for those living alone, would be scrapped in the Budget on October 30.

Elliot Keck, of campaign group the TaxPayers’ Alliance, said: “Under no circumstances should taxpayers have to put up with yet another round of blanket rate rises.

“While there are reasonable discussions to be had about reforming the banding system, the result of any changes should be that residents overall pay less given the enormous pressures on household budgets.

“Local government should be focusing on boosting productivity and finding efficiencies, and not be holding out hope that they’ll be saved by yet another cash injection.”