People in London are benefitting from a quirk of the council tax system dubbed “absurd” by the IFS. The Institute for Fiscal Studies has called on the Government to reform council tax, which is currently calculated using a property’s estimated value in 1991.
Property values have changed wildly across England over the last three decades, and the IFS has said the system now punishes those whose house prices have not kept up with the rest of the country.
Department for Levelling Up, Housing and Communities figures show the average annual cost of a band D council tax property across all 32 London boroughs and the City of London in 2024-25 is 3.3 times as big as 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 council tax rises. Nationally, house prices were 5.6 times as big, while band D council tax 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 significantly benefitted from council tax valuations going unchanged. The earliest available year for comparable figures at a local level was 1995-96.
Of the areas with comparable data, 10 of the 11 benefitting 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, an associate director at the IFS, said it is “increasingly absurd” that council tax valuations are based on 1991 house prices. Mr Phillips added: “Since this one and only valuation of houses, values have increased by massively different amounts around 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 London and its environs too low a band and pay too little compared to what they would under a modernised tax. In other words, in its current form, council tax works against levelling up.”
The average annual cost of a band D council tax property across all 32 London boroughs and the City of London is £1,906 in 2024-25. Meanwhile, the average house price was £501,880 in April, meaning a typical household will pay around 0.4 per cent of their property’s value in council tax this year.
Nationally, this rises to 0.7 per cent. As a result, people in London pay significantly less than their current house value indicates they should. Labour said it has no plans to reform council tax, and is “committed to keeping taxes on working people as low as possible”. It said it would consider the impact on councils and taxpayers before making any tax decisions.
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