Outdated, unfair - but how to fix it?

Chancellor's council tax conundrum

- Zoe Wood

Since council tax valuations in 1991, London property prices have increased sevenfold

(DAN KITWOOD/GETTY)

Council tax is one of the biggest outgoings for many households - so reports of a shakeup that could add thousands to some annual bills is causing concern.

After abandoning a plan to increase income tax in the budget, Rachel Reeves is expected to rely on several smaller tax-raising measures to repair public finances.

Of the ideas still on the table, one is some form of “mansion tax” that gets the owners of expensive homes in England to pay more.

A number of scenarios have emerged. One simply doubles council tax on properties in England’s top two bands (G and H). Another involves revaluing homes in tiers F, G and H and applying a surcharge to the top 300,000 by value across these bands.

As council tax is a devolved matter, all the figures in this article apply to England. However, any changes made by the chancellor could see other nations follow suit. Bills and bandings vary in Scotland and Wales, while Northern Ireland has a rates system.

The main sources of income for local authorities are government grants, business rates and council tax, with the latter funding about a quarter of total spending on services.

Rates are set locally, but annual rises are capped at 4.99% for councils with responsibility for social care services - and 2.99% for those without.

It applies to residential properties, and increases in cash terms depend on their council tax band, which are based on 1991 property values, graded into eight tiers from A to H.

Back then, homes in band D would have been worth between £68,000 and £88,000 - rising to a range of £160,000 to £320,000 for those in band G. The highest tier, H, covers properties above that.