Matters of Interest: Council Tax's Fatal Flaws & The Cost-of-Living Paradox in America

And so I'll start with my matter of interest this week, which is about property taxation.

So In the United States, local government is partly financed through, in most states, local property taxation.

Britain has its own equivalent called council tax.

And those listeners who live in the UK will be more than familiar with the concept and reality of council tax, but they aren't quite the same.

And there have been some suggestions in Britain lately, especially with the change of Prime Minister to Andy Burnham, to consider adopting actually a kind of more American style form of property taxation.

And So I thought for the benefit of our listeners, because I know that we have listeners on both sides of the Atlantic, it's worth just sketching out the property tax and the council tax regime.

So council tax in Britain is a tax that is in part tied to the value of your property, but it's tied to the value of your property individually.

as it was estimated on the 1st of April 1991, which as it happens is just before Lee and I were alive and actually before we know many of our listeners were alive as well.

This was the last time that properties were valued in Britain for the purpose of this council tax.

And there's a whole history there about the failure of Margaret Thatcher's, what was pejoratively, but some would say accurately, called poll tax.

And we've done an episode on that if you want to hear more about the history of Margaret Thatcher's poll tax.

But the fact that there hasn't been a subsequent valuation since 1991 creates uncertainty.

all kinds of problems because relative property value since 1991 has grown differentially in different parts of the United Kingdom.

Properties that were equally valued in London and in Lancashire in 1991 may now see that the value of the house in London is worth much, much more than the very same property that had been the same value in 1991 in Lancashire, just because of the differences in the housing market.

For those of you who are wondering, well, what if a house is built after 1991? Well, the The value of that house is estimated as if that house existed in 1991, which gives you some insight into, in my view, some of the absurdities of this system.

Now, council tax is, on the face of it, somewhat progressive.

because there is a banding system where the values of those houses as they were valued in 1991 or if they existed in 1991 are then used to create a range of bands from band A, which is the lowest valued properties, to band H, which is the highest valued properties.

However, that banding system is only imperfectly progressive.

It is, to a certain extent, locally progressive.

In other words, a house that's among the most expensive in the council area is going to pay more council tax than a house that is among the least expensive in that council area.

But that doesn't mean that it's progressive between councils.

So within an area, pricier properties tend to pay more council tax than cheaper properties.

But nationally, a property that is in the top tier of the property range in, say, Blackpool or Morecambe, next to where we used to live in Lancashire, could pay as much or more than a property that is worth treble, quadruple, even more than that in the southeast.

Even banding itself locally is not entirely progressive because there is no upper ceiling on the value of a band H house, the most valuable house, at least until very recently.

So that would mean that in 1991, band H began at £320,000.