The council tax system needs urgent reform to boost growth in the UK, according to a leading think tank.
The Institute for Fiscal Studies has called for a reform of the municipal 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 “Home Tax Guarantee”.
Requires reform: The IFS calls for an urgent reform of the obsolete municipal tax system
David Phillips, associate director of the IFS, said the guarantee “would mean perpetuating the increasingly absurd situation under which the council tax paid by households is based on the value of their properties relative to others in England on April 1 1991”.
In April, most households received their council tax bills for next year at a new higher rate.
Almost everyone will have experienced an increase of 4.99 per cent, or an extra £104 a year for the average household.
A recent poll conducted by Lord Ashcroft and shared exclusively with the Mail shows that council tax cuts top the list of priorities for voters of all three main parties.
When the current council tax was introduced in 1991, all properties in England and Wales were valued and placed into one of eight council tax bands.
Band A is for properties valued at less than £40,000 and homeowners pay the lowest level of council tax, while Band H is for properties valued at £320,000 or more and homeowners pay the highest level.
The strips are still used today, even though the average house price has increased by around 400 per cent, according to Land Registry figures.
The IFS estimates that at least half the country is now effectively in the wrong band, while taxpayers in and around London pay too little.
“In other words, in its current form, the council tax works against the rise.”
The bands in Wales are slightly different and are 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 almost half a million households are expected to pay more tax as a result.
The Conservatives also pledged not to increase stamp duty, which the IFS said is a “sensible” move.
‘It is one of the most economically damaging taxes applied by the government, significantly increasing the cost of moving and affecting both the real estate and labor markets. It should not be increased, but rather reduced or, ideally, abolished.’
The IFS says the combined abolition of stamp duty with a general reform of the council tax system would be fairer and help boost growth.
‘Fairer because the tax system would no longer penalize people who move around more or whose property values haven’t kept pace with the rest of the country. And better for growth because it would no longer prevent people from moving to better suit their circumstances and for work.
‘By scrapping revaluation and council tax reform, Jeremy Hunt has made it harder to implement growth-enhancing tax system reforms. Labor and other parties should not do the same.”