Many Londoners benefit from ‘absurd’ council tax rates amid IFS calls for reform | My London News

People in London are taking advantage of a quirk of the council tax system that the IFS has called “absurd”. The Institute for Fiscal Studies has called on the government to reform council tax, which is currently calculated based on the 1991 assessed value of a home.

House prices in England have changed dramatically over the past 30 years, and the IFS says the system is now punishing people whose house prices don’t keep pace with the rest of the country.

Figures from the Department for Levelling Up, Housing and Communities show that the average annual cost of a property rated at council tax grade D across all 32 London boroughs and the City of London will be 3.3 times higher in 2024-25 than it was in 1995-96.

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Meanwhile, house prices in the capital saw a 6.7-fold increase between April 1995 and April this year, meaning they more than doubled the increase in council tax. Nationally, house prices were 5.6 times higher, while council tax in band D has seen a 3.6-fold increase, meaning house prices have outpaced council tax by 78 per cent.

As a result, people in London have benefited significantly from the fact that council tax valuations have remained unchanged. The earliest year available for comparable figures at a local level was 1995-96.

Of the areas with comparable data, 10 of the 11 that benefit the most are in London, with residents in Hackney, Wandsworth and the City of London topping the list. Meanwhile, 10 of the 13 worst-off areas are in the North East and North West.

David Phillips, deputy director at the IFS, said it was “increasingly absurd” that council tax valuations are based on 1991 house prices. Mr Phillips added: “Since that one and only valuation of houses, values ​​have risen by wildly different amounts across the country, meaning that at least half are now effectively in the ‘wrong band’.

He continued: “Households in the North and Midlands are often in too high a band and pay too much, while those in the London area are in too low a band and pay too little compared to what they would pay under a modernised tax. In other words, in its current form, council tax is working against levelling-off.”

The average annual cost of a Band D council tax property across all 32 London boroughs and the City of London will be £1,906 in 2024-25. Meanwhile, the average house price in April was £501,880, meaning the average household will pay around 0.4 per cent of their property value in council tax this year.

Nationally, this rises to 0.7 per cent. As a result, people in London are paying significantly less than their current home value suggests. Labour said it had no plans to reform council tax and was “determined to keep taxes as low as possible for working people”. It said it would consider the impact on councils and taxpayers before making any tax decisions.

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