Council Tax Evasion

The amount of uncollected council tax continues to rise each year, reaching well into hundreds of millions of pounds. Research by the GMB union highlights how between the last two financial years the amount of uncollected tax has risen by £19,468,019 to the sum of £760.6 million in 2006/07. Given that council tax raises £23 billion pa., that is a small proportion (3.3%), but it is nonetheless much higher than for other taxes (like National Insurance, or fuel duty). 

In the case of council tax, people who don’t pay up only cost law-abiding taxpayers more the next year as council tax bills increase in an attempt to try and close the gap on the lost revenue. This is not always the case as councils have started to plan for imperfect collection rates, and more people using Direct Debit to pay makes it easier for finance departments to estimate income.  Theorectically, although we think the current level of council tax is scandalous, if everyone were to pay their council tax, there would be a broader collection base, which should in turn justify a reduced rate of council tax. But no tax - short of a flat tax - can ever expect to achieve zero per cent evasion and this should not be a condition for cutting bills.

We don’t condone tax evasion, but council tax is by far the most unpopular tax levied on the British public and people are greatly dissatisfied by the returns they get from council tax payments. It is unclear to the average taxpayer how council tax benefits them and councils need to change this. If town halls made a better argument for what council tax revenue is spent on, and reduced the amount of tax that they routinely waste, then people would be more inclined to pay up and the amount of uncollected revenue would decrease. If any tax is seen as unfair, there is always more incentive for those on the fringes to make the effort to avoid it, or risk being caught by evading the tax outright.

Evidently something must be done, and it is individual councils who need to lead the way.  Local authorities need to clamp down on tax evaders because it isn’t fair that they are allowed to get away with it whilst the rest of us continue to pay up, begrudgingly forking out each month despite such poor local services. But we don't want to be in a situation where pensioners who cant afford to pay their tax bill (because council taxes have risen by so much more than pensions) are prosecuted for it and made an example of by being given a prison sentence, whereas those who are evading the taxman with no good reason get off scot free because councils find it harder to track them down.

Comments

[Mark Wadsworth]

They are stupid, is all.

I bet that the bulk of the uncollected tax relates to tenanted properties. If you made the landlord (rather than the tenant) liable, it'd be easy. As to council tenants, it's one department paying money to another (Council Tax) and another department paying out Council Tax to claimants who may or may not hand it back again. Madness.

One of my tenants moved out, he received two letters from the Council. A cheque for his housing benefit and a demand for arrears of council tax.

[David Chester]

Just because a tax is unpopular doesn't mean that it is unfair.

If we were to asses what is the best or fairest kind of tax based on its degree of unpopularity, the results would be inconclusive. This is because we would have no means of knowing how many of the population were represented.

Nobody wants to be taxed and the means of tax fairness assesment must be left to somebody who is able to view the situation dispassionately (which, if you think about it, must be somebody in a non-political role in government).

May I suggest that the fairest kind of tax is one that takes from parts of the population a repayment for something that these individuls take from the community, namely opportunity to earn. They can do this by taking from the community and holding out of use the opportunity provided for access and use urban land sites, or by using them poorely (inefficiently) in order to speculate in their subsequent sales price. Thus the investment by past tax payers (through the government) in the resulting infrastructure is partly wasted and lost. This is because entrepreneers have to base their activities further from the population centers and to pay for the cost of bring workers and materials out and goods into town. They will find that this spoils their "profits", and so be unable to operate their businesses all.

Thus it is my claim that we should tax takings and not makings.

[Acorn]

There is a plot of land at the end of my street which has been vacant and undeveloped for about thirty years. Over those years, various housing developments have moved up to its boundaries such that it now has easy access to all utilities and two roads. A planning application for one small dwelling would succeed because there would be few reasons to turn it down now.

It has cost the owner nothing to hold this plot out of use. Tax payer investment all around it has raised its value to about £150k. A Land Value Tax, paid by the freeholder, – a replacement for Council Tax - could have put an annual charge on holding this plot at a level appropriate to its value; and the tax payers could get a bit back for their investment over the years. Putting a charge against the land, to be paid when the land is sold would help those freeholders who have a cash flow problem and encourage them to sell it. Council Tax non payers are mainly in the public sector, tenants have a habit of disappearing, but land is difficult to hide.

My Council has a gross spend of about £110m. Take away the fees and charges and about £40m “transfer” payments and grants – RSG, housing and council tax benefits – and the council tax ends up at about £10m. Bear in mind that a third of the council house rents – which are half the market rent by the way - and three quarters of the Business Rates we collect are sent directly to Gordon Brown for use in Labour marginal’s up north. Who says you can’t buy votes with a profligate welfare system!

Local government finance is a mess which very few councillors understand and have no powers to fix, Council Tax is just the visible part of the mess.

[Acorn]

Forgot to add this URL to my previous post. From the IFS, it gives an excellent précis of Local Government finance. Northern Ireland's introduction of a "property value tax" looks interesting. NI is often a testing ground for government policy!!!
http://www.ifs.org.uk/bns/bn74.pdf

[Dean]

I would just like to say that the council tax is wrong and that a form of local income tax collected by the Inland revenue who in turn pay the councils directly is the best and cheapest option.Also please can we not have idiots on your websites knocking Council or Housing association Tenants.Most of us work hard and pay our way and we do pay a fair rent unlike the rates that Pivate landlords charge which is a totall rip off by people who are only interested in making themselves rich in the property market and do it for the money etc...ihave rented off them and done work for them and they are not nice people.i might add i have also in the past been a home owner,but unfortually had a lo of bad luck.