Taming the Lyon…
, Monday, 18 February 2008
Following the publication of the Lyons review of Local Government Financing, there has been much talk of revaluation of property and adding new Council tax bandings. While not strictly a business issue, any changes to the Council Tax structure could have profound implications for the business people of Arun – virtually all of whom maintain a home. Neil Hopkins looks into it.
Based on 1991 property values, the current Council Tax system has both its supporters and decriers. If there was to be a revaluation of property (which is distinctly unlikely in the lifetime of the current Parliament), the values would be readjusted to match the property values of a more recent time – probably 2005. In this corner of the country, it’s unlikely that any houses will have lost value in this time, so one might reasonably expect that the Council Tax burden will go up.
However, the Lyons inquiry has come up with a new suggestion to try and distribute things a little more fairly – to supplement the existing Council Tax bands with two new additions; one at the top and one at the bottom – taking from the rich and giving to the poor one might say. It is therefore suggested that, should this idea be taken up by the powers that be, the readjustment would see the majority of the population shifting into the band above that which they are currently in, a smaller percentage adjusting downwards and an even smaller percentage leaping two or more bands upwards.
One of the arguments put forward by the inquiry as to the fairness of this method of adjustment is that there are few asset-rich, income-poor households. However, when one considers the soaring of prices in the Arun area (large portions of which are deprived and made up of low-income households), it is hard to understand how the revaluation will not adversely affect these householders. Only time will really tell, especially in light of the ongoing discussions around the reform of Council Tax benefit systems and the joys that this will bring.
What this means for the rental market, I’m not quite sure. There are many people who are renting accommodation and paying as much as they can afford, divided their hard earned cash between their landlords and central/local government (and let’s not forget the tax on everything else in our lives). If the bands are re-established, will this see a massive change in the rental sector with people forced to downsize due to the increased tax burden that, through no fault nor gain of their own (they of course don’t benefit from the spiralling prices as they don’t own any real estate), they are obliged to pay?
The Lyons review has assumed that the changes to the Council Tax structure will be cost neutral to central Government; that is the money that they ‘lose’ from people moving down a band is made up by those moving up. This is all very well at central Government level, but at the individual strata of our society, the changes could be dramatic.
Consider the ‘worst case’ scenario where the vast majority of houses across Arun hop up a band, and look at both the rental market (as above) or the new-to-market purchasers. If Council Tax increases dramatically, will these people be able to afford to stay in the area, or will they stay but have a lot less disposable income each year? If they are forced to move out of the area, then they are either going to have to change jobs or commute further – thus negating the Council Tax savings and probably decreasing their expendable income yet further. And less disposable income means less to spend on the nicer things in life…
And what of start-up businesses? With entrepreneurial individuals trying to make it on their own, will a mass revaluation of property prices impact on the grass roots growth of the local economy? In the worst case scenario, yes it will.
However, it is important not to be a doom monger about such things. In the US, certain states and cities (including Washington DC) conduct yearly property price reviews which lends a great deal of credibility to Council Tax being linked to property values. And various EU states conduct their revaluations every few years. Wales recently went through its own revaluation process, spurred on by its newly devolved status. It wasn’t easy, but they managed it – so there is a precedent for successful revaluations.
The problem with any mooted revaluation of property and subsequent changes to Council tax is that it is a political hot potato. In order to maintain the credibility of the current system, experts argue that a revaluation is necessary. However, it’s definitely not a vote winner to tell people that they may, or may not, have to pay yet more in Council Tax – especially in light of recent and continual year on year rises.
The revaluation really isn’t going to happen any time soon, that’s for sure. But, when it does, it will be an interesting one to watch, especially for the SMEs of the Arun Business Partnership who might just find their financial situation changing due to market forces that are, let’s face it, completely out of their control.
If you wish to read the Lyons report for yourself, visit www.lyonsinquiry.org. It’s 406 pages long (without appendices) – light bedtime reading then…
Based on 1991 property values, the current Council Tax system has both its supporters and decriers. If there was to be a revaluation of property (which is distinctly unlikely in the lifetime of the current Parliament), the values would be readjusted to match the property values of a more recent time – probably 2005. In this corner of the country, it’s unlikely that any houses will have lost value in this time, so one might reasonably expect that the Council Tax burden will go up.
However, the Lyons inquiry has come up with a new suggestion to try and distribute things a little more fairly – to supplement the existing Council Tax bands with two new additions; one at the top and one at the bottom – taking from the rich and giving to the poor one might say. It is therefore suggested that, should this idea be taken up by the powers that be, the readjustment would see the majority of the population shifting into the band above that which they are currently in, a smaller percentage adjusting downwards and an even smaller percentage leaping two or more bands upwards.
One of the arguments put forward by the inquiry as to the fairness of this method of adjustment is that there are few asset-rich, income-poor households. However, when one considers the soaring of prices in the Arun area (large portions of which are deprived and made up of low-income households), it is hard to understand how the revaluation will not adversely affect these householders. Only time will really tell, especially in light of the ongoing discussions around the reform of Council Tax benefit systems and the joys that this will bring.
What this means for the rental market, I’m not quite sure. There are many people who are renting accommodation and paying as much as they can afford, divided their hard earned cash between their landlords and central/local government (and let’s not forget the tax on everything else in our lives). If the bands are re-established, will this see a massive change in the rental sector with people forced to downsize due to the increased tax burden that, through no fault nor gain of their own (they of course don’t benefit from the spiralling prices as they don’t own any real estate), they are obliged to pay?
The Lyons review has assumed that the changes to the Council Tax structure will be cost neutral to central Government; that is the money that they ‘lose’ from people moving down a band is made up by those moving up. This is all very well at central Government level, but at the individual strata of our society, the changes could be dramatic.
Consider the ‘worst case’ scenario where the vast majority of houses across Arun hop up a band, and look at both the rental market (as above) or the new-to-market purchasers. If Council Tax increases dramatically, will these people be able to afford to stay in the area, or will they stay but have a lot less disposable income each year? If they are forced to move out of the area, then they are either going to have to change jobs or commute further – thus negating the Council Tax savings and probably decreasing their expendable income yet further. And less disposable income means less to spend on the nicer things in life…
And what of start-up businesses? With entrepreneurial individuals trying to make it on their own, will a mass revaluation of property prices impact on the grass roots growth of the local economy? In the worst case scenario, yes it will.
However, it is important not to be a doom monger about such things. In the US, certain states and cities (including Washington DC) conduct yearly property price reviews which lends a great deal of credibility to Council Tax being linked to property values. And various EU states conduct their revaluations every few years. Wales recently went through its own revaluation process, spurred on by its newly devolved status. It wasn’t easy, but they managed it – so there is a precedent for successful revaluations.
The problem with any mooted revaluation of property and subsequent changes to Council tax is that it is a political hot potato. In order to maintain the credibility of the current system, experts argue that a revaluation is necessary. However, it’s definitely not a vote winner to tell people that they may, or may not, have to pay yet more in Council Tax – especially in light of recent and continual year on year rises.
The revaluation really isn’t going to happen any time soon, that’s for sure. But, when it does, it will be an interesting one to watch, especially for the SMEs of the Arun Business Partnership who might just find their financial situation changing due to market forces that are, let’s face it, completely out of their control.
If you wish to read the Lyons report for yourself, visit www.lyonsinquiry.org. It’s 406 pages long (without appendices) – light bedtime reading then…
