Adapting the Council Tax system

Adapting the Council Tax system.

To get the ball rolling, we could apply the same approach as the original Council Tax banding, which was as follows:

Step 1: Each council works out what it wants/needs to spend and subtracts its central government grants to give a small balancing figure to be collected in Council Tax.
Step 2: The council ranks all homes in its area by size/value, so the smallest flats in an area count as two-thirds of unit of housing (Band A) and the largest detached ones count as two units (Band H).
Step 3: The council adds up the resulting number of units of housing.
Step 4: The council divides the required tax (from Step 1) by the total number of units (from Step 3) and that is the tax on homes which count as one unit (i.e. semi-detached homes or large terraced houses, Band D).

So a small flat in Band A pays two-thirds as much as a normal semi in Band D; and the largest detached houses in Band H pay twice as much.
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Using the same approach, all we have to bear in mind is:

a) There is no need to value each individual home; this is expensive and leads to too many arguments; further, Land Value Tax is based on the site premium element of each plot-with-planning and completely ignores whether an individual home is well-maintained/has an extension/loft conversion or whether it is dilapidated/derelict. Each 'home' is unique and special; shapes drawn on a map are not.

b) It is only relative and not absolute values which matter. For example, if you are in a room with a dozen people all milling around and you have to guess how tall each one is in feet and inches, you'd struggle, but getting them to line up tallest on the left, shortest on the right is easy enough. If you are then told that somebody in the middle of the row is 5'6" tall, you can easily guess how tall the others are. So you have to start in the middle and work outwards!

c) We can easily establish the site-only rental value of a bellwether 3-bed semi-detached house in a typical residential area - see examples in 2. above - and we can just express all other homes relative to that.

(Clearly, this approach can be adapted to atypical residential areas i.e. in an inner-urban area with predominantly terraced houses and flats and barely any detached houses, we might take a terraced house or a 3-bed flat as our bellwether Band D home; in a rural area with barely any flats, a detached house with a certain sized garden might serve best as the Band D home with small terraced cottages originally built for farm workers (and anything smaller than that) are put into Band A).

Going by average relative selling prices from HM Land Registry's 2014 sold prices and typical rents in a few sample areas, homes in a normal residential area can be banded so that the end result is a reasonable reflection of relative values as follows:

Band A - 4.5/9 or 50% - Studio flats (automatic single-person's discount)

Band A - 6/9 - One-bedroom flats

Band B - 7/9 or 78% - Two-bedroom flats; small terraced houses

Band C - 8/9 or 89% - Three-bedroom flats; medium sized terraced houses; small semi-detached houses

Band D - 9/9 or 100% - Large terraced houses; three-bed semi-detached houses

Band E - 11/9 or 122% - Larger semi-detached houses; smaller detached houses

Band F - 13/9 or 144% - ‘Normal’ detached houses

Band G - 15/9 or 167% - Large detached houses

Band H - 18/9 or 200% - Very large detached houses

So, for example…

- in the very cheapest areas, Band D tax is £900 a year; Band A tax (studio flat) is £450; Band H tax for very large detached homes/plots is £1,800.

- in median areas, Band D tax is £6,000; Band A tax (studio flat) is £3,000; Band H tax is £12,000.

- in a top decile area, Band D tax is £14,000; Band A tax (studio flat) is £7,000; Band H tax is £28,000.

Having done the exercise, you then compare the results with actual market rents and rental values implied by selling prices, i.e. how much people are with small deposits have to pay in annual mortgage payments plus Council Tax, and shuffle homes at the edges of each Band up and down accordingly to get a reasonably satisfactory result - as John Maynard Keynes said, "It is better to be roughly right than precisely wrong".