Consultation launched on major council tax reform in Wales

Martin Shipton

The Welsh Government has launched a consultation seeking views on options aimed at redesigning the council tax system to make it fairer.

Council tax helps to fund the everyday essential services provided by local authorities which we all rely on – from schools to libraries, social care to street cleaning.

But the current system is 20 years out of date, and many have argued that it is unfair, with people living in homes in the lowest council tax bands paying a relatively higher amount of council tax in relation to the value of their homes, than people who live in higher value homes.

According to the Welsh Government, a key goal in making the system fairer is that the changes do not seek to increase the overall amount of council tax raised, and any redesign should raise the same amount of council tax across Wales as the current system would.

The consultation includes different potential approaches designed to make the tax fairer, including adding new council tax bands, changing the tax-rates charged for each band, and reviewing discounts and reductions.

The consultation also asks about the pace of change people would like to see. The earliest date for any changes coming into effect is April 1 2025. However, changes could be deferred until the next Senedd term, beginning in May 2026, or introduced in stages.

Revaluation

In parallel with this work, the Valuation Office Agency is preparing to carry out a proposed revaluation of all 1.5 million homes in Wales to ensure valuations are up-to-date and in line with current property values.

Under Welsh Government plans, revaluations would happen every five years to ensure people are paying the right amount of council tax in relation to the value of their property. This also provides an opportunity every five years to keep looking at the tax bands and tax-rates, with changes introduced to keep making the system fairer.

While property prices have generally increased, this does not mean that council tax bills will automatically rise. Many people’s bills would stay the same after reforms and some would fall.

The Welsh Government’s three proposed approaches are:

* Minimal reform – a revaluation of properties to check they are up-to-date but keeping the current nine bands and tax-rates. This would bring the current system up-to-date and result in a small move in the direction of fairness;

* Modest reform – a revaluation plus further reforms to the tax-rates charged for each band, to spread council tax more fairly. This means bills for households in lower band properties would fall, and bills for those in the highest band properties would rise. This would address both the outdatedness of the current system and also its unfair, regressive nature;

* Expanded reform – a revaluation plus further reforms including additional tax bands and changes to the tax-rates. This approach would see the number of bands increase from nine to 12, adding one band at the bottom for the lowest value properties in Wales, and two more bands at the top, for the most expensive properties valued at over £1.2m. This would be a decisive move in the direction of fairness.

Council tax also includes a detailed framework of support for people who need it, including support provided to low-income households through the Council Tax Reduction Scheme and a range of discounts and exemptions. Nearly half the households in Wales currently receive some form of discount or reduction on their council tax bill – and this will not change as a result of any reform.

Discount

The Welsh Government is also committed to retaining the one-adult discount and to keep the level of discount at 25%.

It does, however, propose to change the treatment of empty properties, removing the obligation on councils to offer a 50% discount on most empty properties (councils would maintain their discretion on caravans and houseboats, on homes where the owner has died and job-related dwellings), as well as improving the Council Tax Reduction Scheme, which currently helps nearly half of households in Wales..

In parallel, the Institute for Fiscal Studies has released an independent report, providing illustrative examples for how the three reform options could look in different parts of Wales and for different types of households.

Minister for Finance and Local Government Rebecca Evans said: “We are asking people to help us shape the future of council tax in Wales. Achieving a fairer council tax will be one of the single most beneficial actions this government can take towards making Wales a more equal nation. The benefits will be felt in the pockets of many households.

“This is not about raising more money from taxes and changes are not going to happen overnight. We see this very much as being a gradual process and that is why we are also asking for views on the pace of change.”

Work on the reform is being carried out in collaboration with Plaid Cymru as a part of the Co-operation Agreement between the Welsh Government and Plaid Cymru.

Outdated

Plaid Cymru Designated Member Cefin Campbell said: “It is widely recognised that council tax is outdated and long overdue for reform.

“This consultation is asking for the views of people across Wales on what a council tax could look like in the future and how we can make it fairer. While change is needed, it will take time meaning bills will not change immediately. We are consulting not only on what needs to change, but when the changes could come into place.”

The consultation closes on Tuesday February 6 2024.

Recently a report from Cardiff University’s Wales Governance Centre advocated scrapping council tax and replacing it with a system of local income tax, but that isn’t an option in the consultation.

The Welsh Government has concluded that scrapping council tax and replacing it with local income tax would be complicated and time-consuming and might be beyond its devolved powers. There are also concerns that income tax is easier to avoid than council tax, which has a high collection rate.