Low Earners Pay Proportionally More Council Tax 25/05/2005

A report released today has revealed that people on middle and low incomes spend proportionally more of their income on council tax than those on higher incomes do.

The research, which was carried out by Dr Michael Orton of the University of Warwick and sponsored by the Economic and Social Research Council, reported that a fifth of the population who were on the lowest incomes spent an average of 4.6% of their income on local taxes, even after benefits and discounts had been taken into account. This was compared to 20% of those on the highest incomes spending just 1.6% of their pay on them.

It is often assumed that the problem is that people on low incomes live in high-value properties, although the research shows that this is less common than is assumed. The report also said that council tax bills are more closely related to homeowners' incomes and their ability to pay them than people think.

The report stated that less than a fifth of all UK properties fell into bands E to H, and it estimated that only between 6% and 10% of these properties were owned by people on low incomes, most of them pensioners.

There are twice as many owner-occupier households in band E that are estimated to have high incomes than low and modest incomes combined, while in band H there were nearly seven times as many owner-occupier households on high incomes.

However, the study said that even due to these surprising findings, the impact of high council tax on people on low incomes should not be underestimated. The research pointed to one example of a pensioner living on his own in a band E property who was billed £103 per month and had a net weekly income of just £123. The pensioner was not entitled to council tax benefit because he had savings of around £20,000.

Dr Orton, who carried out the research, said: "We found that for owner-occupiers there is overall a clear and positive relationship between household income and property value, with few exceptions. This remains the case when different measures of property value are used, and is the same for couples or single people."

Dr Orton added: "The implication of this new research is that there needs to be a debate not only about the small number of people with low incomes living in high-value properties, but also the fact that much larger numbers of people in middle and lower value properties are paying more than their fair share of council tax."

He was quick to add that there was no quick-fix solution to the problem due to the immense complication of the process of local taxation. Reforming the system is complicated by the impossibility of defining a 'perfect' relationship between affordability and property value.

"When it comes to the individual household, factors such as people moving from hotspots to lower value areas, inheritance, unemployment, breakdown of relationships, downsizing and growing older, all mean that trying to determine a perfect relationship between income and property is misleading."

Sir Michael Lyons, director of the Institute of Local Government Studies at the University of Birmingham, is currently reviewing the council tax system and is due to release a report on ways to make the system fairer and more sustainable before the end of this year.