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JRF; "Struggling to Pay Council Tax: New Perspectives on the Local Taxation Debate"

Posted on the 11 August 2013 by Markwadsworth @Mark_Wadsworth
I've only just stumbled across this fine research by the Joseph Rowntree Foundation, it's from 2006 but none of it will have changed much.
To sum up:
It is estimated that over two million households struggle to pay council tax each year in England.
Those struggling to pay are predominantly low-income households in low-value properties, not people in high-value properties (see Table 1 and Figure 1). These conclusions are based on the following findings...
* It is estimated that 5,740,833 households in Britain have a low income and live in bands A-C (including 2,898,888 pensioner households).
* It is estimated that 181,450 households in Britain have a low income and live in bands F-H (including 101,008 pensioner households).

They then provide more detailed figures, which can be presented as follows:
As you can clearly see, there is a very strong correlation between household income and the value of the house they live in, taking Council Tax Bands as a proxy for home values.
This is not because people wouldn't be able to afford the £3,000 a year they'd have to pay in Council Tax to live in the nicest homes in Band H or I. It is because they can't afford to buy such houses, which cost £500,000 or more. It is not the publicly collected tax which is stopping them from trading up, it is the privately collected tax (the cost of the land and the interest on the mortgage); that's the real "tax on aspiration".
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Be that as it may, it's easy to see how many people would win or lose from a shift from taxing incomes to taxing the rental value of land (assuming personal allowances can be offset against LVT bills and on average two adults per household).
* The seventy-one per cent of households in the top left-hand quadrant will be paying less in LVT than they did in Council Tax, and most of them will be paying a lot less in income tax as well.
* The ten per cent of households in the lower left-hand quadrant will be paying more in LVT than they did in Council Tax. One-third of these are pensioners, who'd be largely unaffected as they will be able to go for the deferment/roll up option, one-third will be saving as much in income tax as they are paying extra in LVT and one-third will indeed have to take evasive action, like getting a better-paying job, taking in a lodger or trading down etc. So let's assume that three per cent of households really have to trade down.
* The ten per cent in the top right-hand quadrant are laughing on both sides, they are paying less in Council Tax and a lot less in income tax. As long as one- third of these households are happy to trade up, i.e. swap places with the unlucky three per cent in the bottom left-hand quadrant, then everything reverts to its long term equilibrium.
* The nine per cent in the bottom right-hand quadrant will save a lot in income tax and pay a lot more in LVT, but by and large, they will end up with more disposable income.

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