When a new tax based on property prices was introduced over a decade ago in the wake of the Poll Tax riots it seemed like a good idea. In terms of the average life span of any tax it has become remarkably unpopular in a remarkably short period of time but what does it mean for Brighton businesses?
Since the Conservative government lost power it has risen by 60% to an average bill of £1,100 and this year promises to see an average rise of nearly 13% on top of that. Many old people who are cash poor but asset rich in that they live in large houses will pay more than double that sum. For people on fixed incomes, like pensioners, council tax is a real problem and, given their good record of turning out to vote at general and local elections, they make it a problem for government as well.
This year in the south-east in general and Brighton & Hove in particular the local government minister Nick Raynsford is threatening to cap increases at around 5% despite the fact that the reallocation of Westminster’s average grant settlement has seen funding for the south east plummet at the expense of the north.
A letter from all four leaders of the city's political parties asking the minister to reconsider his grant settlement for Brighton & Hove (one of the lowest in the country) was largely ignored. The situation is exacerbated further by central government’s demand that local authorities spend more on education and crime and a compulsory 1% extra on National Insurance (NICs) for their employees.
Unlike other taxes the council tax bears no relation to the ability of the tax-payer to pay it. It is not related to income like PAYE or discretionary spending like VAT or how well the economy fares like Company Tax. Also, because it represents only one quarter of the income that councils spend (the rest comes from central government grants), it means that a 1% increase in spending by a local authority necessitates a 4% increase in council tax.
The government realise that the tax is unsustainable (both Nick Raynsford and John Prescott have said this on record) and they are undertaking a radical review of local fund-raising which will undoubtedly include consideration of a local income tax.
But in the meantime residents of Brighton & Hove are looking at an inevitable increase in Council Tax in April. This comes on top of increasing interest rates and an increase in average indebtedness as a hangover from Christmas. This is bad news for those parts of the economy that rely on buoyant consumer confidence e.g. travel, hospitality and retail. Any business that has a cash flow looking decidedly weak at this time of year should already have made plans to weather the storm. By Easter, when the first instalment of the Council Tax is due, it will be too late.
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