The Sunday Times July 11, 2004 Middle class faces house tax sting
David Cracknell, Political Editor
BRITAIN'S well-off middle-class households face being stung by a property levy to replace the council tax under reforms to be unveiled next week.
Following protests by pensioners, ministers have decided to change the system to make it "fairer", meaning that wealthier homeowners will pay more and poorer households less.
Although ministers have rejected the idea of introducing a local income tax, championed by the Liberal Democrats, they have decided on a replacement that will more accurately reflect the range of house prices.
They will announce a year-long independent review, chaired by an expert in public finance, which will work out the details but which is unlikely to report before the next general election.
This is likely to mean new tax bands being introduced at the top and lower end of the property scale, raising the maximum amount that wealthier households pay.
Another option is to introduce regional tax bands to reflect the difference in property prices between the north and south of the country. Ministers have already set in train a process of revaluing all homes to take account of the housing boom. It will come into force in 2007.
Equally controversially, the government has decided to return to the days when local councils raised business rates and will ask the review to come up with solutions on how to achieve this.
Local business rates were abolished by Margaret Thatcher in the 1980s, when the poll tax was introduced, to stop profligate councils making local firms pay for their expensive schemes.
Overall the scheme to replace the council tax will allow councils to raise more of their own funds. At present they can raise only a quarter of their budgets.
Critics of the government are likely to say that by steering the independent inquiry into developing a new property tax and abolishing national business rates, the review will be a sham.
Sir Jeremy Beecham, vice-chairman of the Local Government Association, said: "We need to make the system more stable. You can't keep changing it every 10 years."