Tuesday 3 April 2012

Council Tax in Wales - Are the poor paying more?

In financially straightened times, and with local elections coming up,
Council Tax and it's relative burden, is becoming a hot issue.
(Pic : BBC Wales)

How council tax works

You'll already know this but....

Council Tax was introduced as a replacement for Community Charge (aka Poll Tax) by the UK Government in 1993. Households are placed into bands, based on the value of their properties, with A being the lowest and H being the highest. A ratio is set, so that bands pay a certain proportion of Council Tax, with Band D as the "average" around which all others are set. Band A households, for example, pays around 67% of the Council Tax of a household in Band D.

In 2003, there was a revaluation of Council Tax bands in Wales, including the creation of an I-band, which came into effect in 2005. According to a BBC article from the time, 33% of homes moved up a band, while only 8% moved down, despite a prediction that "a quarter would move up and a quarter would move down." This could be a result of the house-price boom during that wider period.

For businesses, non-domestic rates (NDR) are based on a "ratable value" of business properties multiplied by a "multiplier" which determines an NDR bill. The provisional multiplier for 2012-13 is 45.2p, so for a business with a ratable value of £10,000 - the provisional NDR bill would be £4,520 – payable in instalments over the year. However it's not as simple as that. There are rate relief schemes that help ease the burden - for small businesses in particular - with low ratable values. It can reduce the bill by as much as 50%, or even 100% for small post offices.

In addition to council tax and NDR, there are also "precepts" – extra levies raised by police authorities, fire authorities, community & parish councils and national park authorities.

Council tax, rate relief, and local government finance are devolved to the Assembly, being one of the few examples of the Assembly wielding fiscal powers.

The situation is more muddied with regard non-domestic rates. Ratable values for businesses, and the "multiplier" are set on an EnglandandWales basis. (Thanks to an Anonymous commentator for pointing that out.)

How is the money redistributed in Wales?

Councils, as far as I know, generally keep whatever Council Tax they raise. Precepts go to the relevant authorities.

Non-domestic rates are put into a central "kitty", held in the Welsh Consolidated Fund at Westminster, and redistributed back to Welsh local authorities based on a formula, made up of various criteria, including population, relative deprivation and demographics. It forms a large part of the Welsh Government's annual local authority settlement.

This is topped up with other central grants to fund local services as part of the Welsh Government's (or in the case of policing, the UK Government, as policing is an EnglandandWales matter) priorities for the area. For example, local transport schemes or to support things like Communities First.

Council Tax in 2012-13

One thing that stood out when looking at the provisional rates, published by the WLGA is how high Band D council tax was in places such as Merthyr Tydfil and Blaenau Gwent. Considering these are two of Wales' smallest and more deprived local authorities, I decided to plot the average wage in each local authority (from 2011) against the respective provisional Band D rate. Then I created a measure to give an idea of the "burden" - by determining how many weeks - at the average local wage - it would take to pay off a Band D bill. I called this an "earnings to tax ratio".

Council Tax in Wales 2012-13
(Click to enlarge)

Some of the figures - in particular the tax increases - might be out of date now. There aren't significant differences from the provisional figures, but a few local authorities have set lower increases, I have to make that clear.

Four local authorities decided to freeze council tax for the year : Bridgend, Swansea, Monmouthshire & Caerphilly.

What are the findings?

Before taking things at face value, it's important to note that council tax is set based on property value not household incomes. Someone could live in a Band B or C property and earn a higher weekly wage than the local authority average, the opposite could also be true. I must also point out the figures above don't include precepts for things like the police or community councils.

The above figures in in graph form
(Click to enlarge)

However the general trends appear to be:

  • At the extremes - the lower the local average wage, the higher the Band D council tax bill and the opposite is equally true.
  • The majority of local authorities tend to have a "burden" of around 1.9-2 weeks wages (excluding precepts).
  • There's probably a link between levels of deprivation in a local authority and higher council tax bills. Only Monmouthshire and Powys from the wealthier East Wales region have above-average Band D council tax bills.
  • Remember that council tax is set using a ratio, so if the Band D bill is higher than average, then Bands C, B and A will be too. Glancing at the Welsh Government's statistics, this is certainly the case.

Political performance

As the local elections are coming up, you're going to put me on the spot and want a party political picture, won't you. It's a mixed bad, with good news and bad news for all parties.

I've defined "led or influenced" as either outright control, minority rule or a ruling coalition - but I've only counted it if the party has a significant number of seats. So for example, Cardiff has been counted for both the Lib Dems and Plaid Cymru. It isn't an exact science, I'm not a psephologist, sociologist or economist, so treat these conclusions with caution.

(Click to enlarge)
  • Conservative led or influenced local authorities are few in number, but they are the wealthiest on average, with below average council tax bills, burdens and the lowest tax rises.
  • Lib Dem led or influenced local authorities are wealthier than average and have the lowest burdens, lowest average council tax bill, but tax rises are at the Welsh average.
  • Independent led or influenced local authorities vary wildly, individually, in wealth, but are generally poorer than the Welsh average. With the exception of Pembrokeshire, tax rises and burdens tend to be the highest, but the average council tax bill is slightly below the Welsh average.
  • Labour led or influenced local authorities have average wealth (probably distorted by Bridgend & Neath Port Talbot), higher than average tax burdens and the highest council tax bills overall, but rises have been kept to below the Welsh average.
  • Plaid Cymru led or influenced local authorities tend to have average burdens, but are generally less-wealthy than the Welsh average. They have the second lowest council tax bills overall, but council tax rises are slightly above average.
All this now begs the question:

Why are the figures they way they are?

It shouldn't automatically be assumed that tax rises are a "bad thing". In terms of politics, it might be true that Labour have higher council tax bills, and the Conservatives smaller, but that was a given, wasn't it? We all know that.

In local terms, different parties tend to rule or influence different areas. Labour in urban authorities of the south and north east, Lib Dems in major urban areas, Conservatives in wealthier rural authorities and Plaid and Independents a wide spread, with Plaid more dominant in Y Fro (Caerphilly and Cardiff aside). Each area is going to have its own individual needs, and subsequently, their own individual spending priorities and requirements.

Council tax bills could:

  • Be justifiably higher in more deprived areas - they tend to have the greatest need for public spending. I imagine most households in these areas will be Bands A, B and C - so Band D is set higher to maximise income from lower bands. Is this putting a greater burden on some of our poorest communities? It might not be that clear cut.
  • Be set at an affordably lower rate in larger, more populated, local authorities (Cardiff, Swansea, Newport, Wrexham etc.) - there are more households. Wouldn't they also be receiving more from the non-domestic rates "kitty" too? Are council tax freezes, or smaller rises, trumpeted in these places actually, to an extent, disingenuous?
  • Be justifiably higher in sparsely populated areas - because services are generally more expensive to run there – but that doesn't explain the Pembrokeshire anomaly.
  • Be affordably set lower in wealthier local authorities – they're likely to have more properties in higher council tax bands – Monmouthshire and the Vale of Glamorgan for example.
  • Be a reflection of the small size of some local authorities. It might be easier to run some services close to a community. However, with a smaller household pool to get tax from, are taxes set at a disproportionately higher rate to provide services at the same level and standard as larger authorities?

It's a complicated picture.

It's also important to look at the impact of council tax in terms of demographics and welfare.

The Institute of Fiscal Studies published a report in 2010 entitled "A Survey of the UK Benefits System". It offers a detailed overview of the current benefits system in the UK, but also looks at the UK Government's plans for welfare, including changes to benefit entitlements and the introduction of the Universal Credit.

Council Tax benefit is available to people on low incomes – averaging £15.69 per week according to the latest release by the Department of Work & Pensions. At the end of 2011, there were just over 327,000 council tax benefit recipients in Wales, which is roughly the equivalent of £270m per year.

According to the IFS report, Council Tax benefit is due to be localised from 2013-14, with an estimated spending reduction in the area of 10%. So there is the possibility it could disproportionately impact some of Wales' already struggling areas, already with some of the highest council tax bills and relative "burdens".

Are there possible alternative funding models for the future?

Mark Drakeford (Lab, Cardiff West) recently advocated a Land Value Tax, holding a short debate in the Assembly, which you can see here. (Not wanting to get too off topic, but how depressing is it to see so many empty seats in the Siambr for such a imaginative policy proposal?) There's also an article on Click on Wales.

The basic idea is that, as you might have guessed, the value of land is taxed, instead of the value of whatever's built on top of it. It was be much clearer to understand and collect, and it might encourage development, to avoid areas "lying fallow". Nobody would like to be taxed on something they own but don't use, would they?

In Scotland, the SNP proposed to introduce local income tax, to replace council tax. It would have operated similarly to non-domestic rates – the central government would collect local income tax, then redistribute it back to local authorities.

The UK Government threatened to withhold £400million in Council Tax benefit if the SNP went through with the proposal, and it probably contributed to the policy being effectively dropped. The IFS produced a bulletin that suggested that a 3% local income tax would leave a shortfall of some £450million.

There's also the option of US-style Local Sales Taxes - as a way to compliment, or reduce non-domestic rates – put on top of something like VAT or added to any sale in a given area, set at a local level, but realistically something like 1%.


Are the poor paying more council tax in Wales? At the most basic, visual level, you could certainly get that impression. However, the underlying picture is more complicated than that. Council Tax has never been a particularly popular fiscal lever in the UK, but judging by the statistics, it does provide a substantial level of income for our local authorities – more so than a local income tax would.

Despite there being a wide range of help out there - from Council Tax benefit, to rate relief - is a tax based on property value, at a fundamental level, ever going to be truly fair?


  1. NDRs aren't really devolved. Central pot is held at the Treasury (although it is a specifically Welsh pot) and all that is allowed is rate relief. The valuation office isnt devolved, nor the multiplier. In Scotland and nI the whole business rates system is devolved. Prof Brian Morgan looking at this at the moment.

  2. Thanks for pointing that out, Anon. I've amended it accordingly.

  3. NDR also is subject to Barnett and comes as part of the Welsh block grant. I believe the multiplier is devolved but if you reduce it then you lose the equivalent on the block but don't gain extra if the tax base increases. Also, local authorities don't retain any NDR as its distributed centrally. This means that City authorities get much less benefit for strong NDR receipts as it gets distributed to the other LAs; hence the argument in favour of local retention (which would potentially disadvantage more rural areas?)

    Essentially as Anon says above - its not really devolved properly atm, only the rate relief system is.