Socialist Worker

Squeezing the poor to subsidise the rich

by Matthew Cookson
Issue No. 1890

COUNCIL TAX has shot up by almost half since New Labour came to power. This has shifted the tax burden from the rich and onto ordinary working people. The tax rose by an average of 13 percent last year, and is expected to go up another 7 percent this year. This would bring the total increase since 1997 to 49 percent-far more than earnings have risen over the same period.

The rises have tapped into the bitterness felt by millions across Britain who feel that the rich are raking it in while the poor struggle to get by. In some areas campaigns have sprung up, mainly involving pensioners opposed to the unfair tax. A number are refusing to pay the tax and are facing prison. The problem is so deep that Blairite former minister Stephen Byers has called for the tax to be changed.

He said last week, 'The present system of council tax is unsustainable. It needs to be replaced by a new system which protects pensioners and those in greatest need while ensuring that business pays its fair share.' Even right wing tabloids like the Daily Express and the Daily Mail have run headlines critical of the tax. They know that the issue is touching a nerve, even though they would be the first to scream if a genuinely fair tax system was introduced.

John Major's Tory government introduced the council tax in 1993 to replace the hated poll tax. It is based on the value of housing rather than income. Homes are divided up into eight bands-the lowest value (below £40,000) in band A and the highest value (above £320,000) in band H.

Households in band H can only pay three times more than those in band A, even though their properties are worth at least eight times as much. And the people living in band H homes are likely to have far greater incomes than those in the lower bands.

In 2002 property developers David and Simon Reuben managed to grab £1.9 billion. A civil servant who has just started work for the Department for Work and Pensions earns just over £10,000. Yet the Reuben brothers, with their huge incomes and luxury homes, could at most pay three times as much council tax as the civil servant in her council flat. The poorest fifth in society spent 7.2 percent of their disposable income on council tax in 2000. The top fifth only paid 2.4 percent of their disposable income.

While individuals have faced staggering rises in council tax, businesses have got away with much smaller rises. The amount businesses pay towards council spending is pegged to inflation. Businesses used to account for 30 percent of the amount raised locally for councils. Now it is just 23 percent.

If businesses paid as much now as they did in 1993, the council tax for the average band D household, an average of £1,100 a year, would be £254 less. As successive governments have refused to tax the rich, council tax has increased. The tax raises around 30 percent of local government revenue. Central government provides the rest.

New Labour has curbed the amount it gives, starving public services of the money they need. Some of the money provided by central government is 'ring fenced' for particular services such as education. This means that other services, like libraries and rubbish collection, are squeezed. Council taxes are raised to cover the cost of public services.

Council tax is also rising to fuel a massive rise in police spending, which was the main factor in 13 out of 20 of the biggest increases last year.

The real solution to the crisis is to change the system. The Scottish Socialist Party are campaigning for the scrapping of the council tax in Scotland. They want it replaced with the Scottish Service Tax. This would be based on income. Under the scheme three quarters of people would be better off, while the rich would have to pay more. Low income houses would save between £20 and 25 a week.

To spread this system fairly across Britain you would have to continue redistributing wealth from councils in richer areas to those in poorer areas. Otherwise in areas where there were fewer people with high incomes, there would be less money to spend on services, or workers would have to pay more. If such a system were applied in London, for example, there would be much more raised by councils in wealthy areas like Westminster than in poorer areas like Hackney.

The issue of council tax will be a key issue in the elections in June this year. Respect: The Unity Coalition will be standing in England and Wales on the promise to 'tax the rich to fund welfare, and to close the growing gap between the poor and the wealthy few.'

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Sat 28 Feb 2004, 00:00 GMT
Issue No. 1890
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