George Bull

Written by: George Bull

George Bull

Senior Tax Partner

Westminster's voluntary council tax payments show system is flawed

Many will draw comfort from the willingness of the occupiers of Westminster's most expensive homes to make a voluntary contribution to top up their council tax payments. The figure being asked for by Westminster Council, £833 per year, ought to be comfortably within the means of most occupiers of these properties. So, what's all the fuss about?

There are two aspects to this. First, the way that council tax works. Westminster City Council collects £816.24 for each band H property. The GLA contribution of £560.04 brings the total paid in respect of each band H property to £1,376.28. For comparison, council tax paid in respect of a band H property in Hemel Hempstead, Hertfordshire is £3,175.

The fact that these figures are so out of line reflects the fact that council tax in England works by allocating to every property one of eight bands according to its capital value at 1 April 1991. The Valuation Office Agency decides on the valuation band. Since 1991, property values have increased dramatically and nowhere more so than in Westminster, but council tax bands in England have remained fixed.

Under this regime, a council can collect more council tax from a particular property by making annual increases within the amount set by the Secretary of State under the Localism Act 2011. Broadly, that caps increases at around 6 per cent. If a council wishes to impose a larger council tax increase, it can only do so after organising a local referendum to obtain approval for its proposals.

That leads to the second point. While it's commendable that the wealthier residents of Westminster are prepared to voluntarily increase their council tax contribution, it's worrying that the council tax system has been allowed to become so out of date that voluntary payments have to be invited. 

If any tax system is to be fair, proportionate, certain and transparent then legislators must keep on top of the issues and to make sure that the tax is fit for purpose at all times. That's definitely not the case with council tax. While successive governments have shied away from a general council tax revaluation, the time is coming when such a revaluation may be inevitable.

We see the same issues in respect of UK taxes generally, where Parliament laments the scope for tax avoidance but exhibits extreme reluctance to recognise its part in the problem by not enacting legislation which is fit for purpose.

Interestingly, the wealthy residents of Westminster are being widely praised for their willingness to pay a voluntary increase on their council tax bills. But in 2017 when Google offered to pay more tax in the UK, it was roundly criticised on the basis that it was Parliament not Google who should decide how much tax the internet giant should pay. But surely flawed tax systems are to blame for EU countries missing out on revenue – a point that was echoed by Google's CEO Sundar Pichai at Davos this year.

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