Council tax - revaluation and reform: key findings summary

Transitioning to a new system

Given that 34 years have elapsed since properties were valued, and the current regressive nature of the tax, revaluing and reforming council tax would see some households face large changes in bills. To give households more time to prepare and adapt to changes in bills, a system of transitional relief that phases in large increases in bills over a period of a few years rather than overnight could be implemented. This is what has previously been done for business properties when they are revalued (which now takes place every three years)^[xii] and what Wales did when it revalued properties in 2005 (and plans to do when they are revalued again in 2028).^[xiii]

A key trade-off when designing transitional relief is between the coverage and level of support on the one hand, and its cost on the other. To illustrate this, we have modelled several example schemes.

Scheme 1, the most generous, caps bill increases in any one year at the lower of 10% or £300. This would mean any property moving up a band under a pure revaluation would receive transitional relief in the first year after the reform (and many would receive support for two years). We estimate this would cost around £100 million in that first year (and a further £70 million in total over the following three years). The bigger changes in bills under less regressive council tax systems would mean transitional relief provided more protection but at a greater cost. For example, under the 12-band less regressive system, we estimate that scheme 1 would cost around £200 million in the first year (and £190 million in total over the following three years).

Scheme 2, which would cap bill increases at 25% or £600 a year, would cover far fewer households and focus support on those seeing the biggest increases – typically those moving up multiple bands or in very high-value properties. We estimate that with a pure revaluation, first-year coverage would fall to 7% of properties and the cost would fall to £34 million in the first year (and £4 million in total over the following three years). Under the 12-band less regressive system, we estimate that costs would fall to £100 million in the first year (and £20 million in total over the following 3 years).

To put these figures in context, council tax revenue in Scotland this year is forecast to be £3,300 million,^[xiv] and total local government funding £18,400 million.^[xv]