Council tax in England is frozen in 1991 and needs urgent reform, says the IFS

The council tax system needs urgent reform to kickstart growth in the UK, according to a leading think tank.

The Institute for Fiscal Studies has called for reform of the council tax system as well as the abolition of stamp duty to promote growth.

It comes after the Conservatives ruled out revaluing and reforming council tax as part of a ‘Family Home Tax Guarantee’.

Requires reform: The IFS calls for urgent reform of the outdated council tax system

David Phillips, an associate director at the IFS said the guarantee ‘would mean perpetuating the increasingly absurd situation whereby the council tax that households pay is based on the value of their property relative to others in England on April 1 1991.’

In April, most households received their council tax bills for the coming year at a new higher rate. 

Almost all will have seen a 4.99 per cent hike, or an extra £104 a year for the average household.

A recent poll by Lord Ashcroft and shared exclusively with the Mail shows council tax cuts are at the top of the priority list for voters of all the main three parties.

When current council tax was launched in 1991, every property in England and Wales was valued and put in one of eight council tax bands.

Band A is for properties valued at under £40,000 with owners paying the lowest level of council tax, while Band H was for properties valued at £320,000 or higher, with owners paying the highest level.

The bands are still used today, despite the average house price increasing by around 400 per cent, according to figures from the Land Registry.

The IFS estimates that at least half of the country is now effectively in the wrong band, while taxpayers in London and its surrounding areas are paying too little.

‘In other words, in its current form council tax works against levelling up.’

The bands in Wales are slightly different and based on the value of the property on 1 April 2003. 

The Welsh Government is currently looking at reforming and revaluing council tax bands and nearly half a million homes are expected to pay more tax as a result.

The Conservatives also pledged not to increase stamp duty, which the IFS says is a ‘sensible’ move.

‘It is one of the most economically damaging taxes levied by the government, significantly increasing the cost of moving and gumming up both the housing and labour market. It should not be increased – rather it should be reduced or, ideally, abolished.’

The IFS says the combined abolition of stamp duty with wholesale reform of the council tax system would be fairer and help to kickstart growth.

‘Fairer because the tax system would no longer penalise people who move more, or whose properties value has not kept pace with the rest of the country. And better for growth because it would no longer hinder people from moving to better suit their circumstances and for work.

‘By ruling out revaluation and reform of council tax, Jeremy Hunt has made it harder to deliver growth-enhancing reforms to the tax system. Labour and other parties should not follow suit.’