As more than 80% of London councils plan to increase council tax by 4.99% within the next year, financial experts worry the move will disproportionately affect poorer households.
Numerous politicians have called for an update to how council tax is valuated across England. These include Conservative Peer Lord Pickles, as well as the Chancellor Jeremy Hunt.
Council tax is based on the value of houses in 1991, meaning modern-day increases do not account for the current price of houses or the wealth of households.
The increase will take effect at the start of the next financial year in April 2024.
Two of the latest councils to announce increase, Westminster and Greenwich, say this is necessary in light of growing financial pressures such as the cost-of-living crisis and a higher demand for social housing.
John O’Connell, Chief Executive of the TaxPayers’ Alliance – a pressure group advocating for fairer taxes – told City News: “All taxpayers will be feeling the weight of council tax increases.
“But those with lower incomes are having to bear the brunt of this burden amidst other financial pressures.”
For many councils in the city this is a repeat of measures taken in 2023, meaning the overall increase for some, is almost 10% in two years.
How much are you spending on council tax?
Data from the TaxPayers’ Alliance found that some Londoners will spend almost 7% of their income on council tax each year.
With wages, on average, not rising in line with inflation or the cost-of-living crisis, this data suggests those with lower incomes will feel the 4.99% rise much more than those in a higher wage bracket.
The difference in average council tax contributions mean tax payers across London are not contributing equally. David Phillips, from the Institute of Fiscal Studies, says this has ramifications for council spending as a whole.
He stresses that council tax directly affects a local council’s ability to fund its services.
According to him, whilst increasing council tax will improve a council’s overall spending powers, the effect will be different for each borough.
Mr Philips explains that because council tax is lower in Westminster, it “raises relatively little” for the council overall. Council tax makes up just a fifth of their budget as they have different sources of income.
Whereas, the council taxes of those in Tower Hamlets, will make up two fifths of their council’s funding.
There is a higher burden on lower-income households to fund their council, and in turn services, than there is on the wealthy.
What’s happening in Westminster?
Westminster Council has the lowest council tax compared to the average house price.
The Valuation Office Agency for council tax found that in 2023, residents on band D were paying just 0.1% of the property’s value on council tax.
Westminster’s Buckingham Palace (valued at over £3 billion) is on the highest council tax bracket, band H, but pays £1828 per year in council tax (not including business rates).
This is almost the same as what a band E homeowner in Tower Hamlets, one of the poorest boroughs, will pay next year.
So, when this 4.99% rise takes effect, the richest homeowners in Westminster will be paying comparatively less for their homes than in other areas of London.
For Estella, a young professional living in Westminster, the rise does not worry her.
She admits “I don’t mind such a small increase in the council tax, especially as I think we get excellent value for money in Westminster.
“The cheaper council tax means you can afford a nicer flat.”
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HeadlineCalls for council tax overhaul as lowest-income households hit hardest by 4.99% increase
Short HeadlineCouncil tax increase to impact poorest
StandfirstSome Tower Hamlets households to pay the same as Buckingham Palace as 80% of London councils plan to increase rate within next year.
As more than 80% of London councils plan to increase council tax by 4.99% within the next year, financial experts worry the move will disproportionately affect poorer households.
Numerous politicians have called for an update to how council tax is valuated across England. These include Conservative Peer Lord Pickles, as well as the Chancellor Jeremy Hunt.
Council tax is based on the value of houses in 1991, meaning modern-day increases do not account for the current price of houses or the wealth of households.
The increase will take effect at the start of the next financial year in April 2024.
Two of the latest councils to announce increase, Westminster and Greenwich, say this is necessary in light of growing financial pressures such as the cost-of-living crisis and a higher demand for social housing.
John O’Connell, Chief Executive of the TaxPayers’ Alliance – a pressure group advocating for fairer taxes – told City News: “All taxpayers will be feeling the weight of council tax increases.
“But those with lower incomes are having to bear the brunt of this burden amidst other financial pressures.”
For many councils in the city this is a repeat of measures taken in 2023, meaning the overall increase for some, is almost 10% in two years.
How much are you spending on council tax?
Data from the TaxPayers’ Alliance found that some Londoners will spend almost 7% of their income on council tax each year.
With wages, on average, not rising in line with inflation or the cost-of-living crisis, this data suggests those with lower incomes will feel the 4.99% rise much more than those in a higher wage bracket.
The difference in average council tax contributions mean tax payers across London are not contributing equally. David Phillips, from the Institute of Fiscal Studies, says this has ramifications for council spending as a whole.
He stresses that council tax directly affects a local council’s ability to fund its services.
According to him, whilst increasing council tax will improve a council’s overall spending powers, the effect will be different for each borough.
Mr Philips explains that because council tax is lower in Westminster, it “raises relatively little” for the council overall. Council tax makes up just a fifth of their budget as they have different sources of income.
Whereas, the council taxes of those in Tower Hamlets, will make up two fifths of their council’s funding.
There is a higher burden on lower-income households to fund their council, and in turn services, than there is on the wealthy.
What’s happening in Westminster?
Westminster Council has the lowest council tax compared to the average house price.
The Valuation Office Agency for council tax found that in 2023, residents on band D were paying just 0.1% of the property’s value on council tax.
Westminster’s Buckingham Palace (valued at over £3 billion) is on the highest council tax bracket, band H, but pays £1828 per year in council tax (not including business rates).
This is almost the same as what a band E homeowner in Tower Hamlets, one of the poorest boroughs, will pay next year.
So, when this 4.99% rise takes effect, the richest homeowners in Westminster will be paying comparatively less for their homes than in other areas of London.
For Estella, a young professional living in Westminster, the rise does not worry her.
She admits “I don’t mind such a small increase in the council tax, especially as I think we get excellent value for money in Westminster.
“The cheaper council tax means you can afford a nicer flat.”
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