Council tax in England was frozen in 1991 and is in urgent need of reform, the IFS says

The council tax system needs urgent reform to boost growth in Britain, according to a leading think tank.

The Institute for Fiscal Studies has called for reform of the council tax system and the abolition of stamp duty to promote growth.

It comes after the Conservatives ruled out the revaluation and reform of council tax as part of a ‘Family Home Tax Guarantee’.

David Phillips, deputy director at the IFS, said the guarantee would ‘perpetuate the increasingly absurd situation where the council tax paid by households is based on the value of their property relative to that of others in England on April 1, 1991.’

In April, most households received their council tax bills for the coming year at a new, higher rate.

Almost everyone will have seen an increase of 4.99 per cent, which equates to an extra £104 per year for the average household.

A recent poll by Lord Ashcroft, shared exclusively with the Mail, shows that council tax cuts are top of the priority list for voters from all three main parties.

When the current council tax was introduced in 1991, every property in England and Wales was valued and placed into one of eight council tax bands.

Band A is for properties valued at less than £40,000, with the owners paying the lowest level of council tax, while Band H is for properties valued at £320,000 or more, with the owners paying the highest level.

The bands are still used, despite the average house price rising by around 400 percent, according to figures from the Land Registry.

The IFS estimates that at least half the country is now effectively in the wrong band, with taxpayers in London and surrounding areas paying too little.

‘In other words: in its current form, municipal taxes work against levelling.’

The bands in Wales are slightly different and based on the property value on April 1, 2003.

The Welsh Government is currently exploring the reform and revaluation of council tax bands, and almost half a million households are expected to pay more tax as a result.

The Conservatives also pledged not to increase stamp duty, which the IFS said was a ‘sensible’ move.

‘It is one of the most economically damaging taxes imposed by the government, significantly increasing the cost of moving and putting pressure on both the housing and labor markets. It should not be increased, but rather reduced or, ideally, abolished.’

The IFS says the combined abolition of stamp duty and a wholesale reform of the council tax system would be fairer and help boost growth.

‘Fairer because the tax system would no longer punish people who move more, or whose property does not keep pace with the rest of the country. And better for growth, because it no longer prevents people from moving to better suit their circumstances and work.

‘By ruling out revaluation and reform of council tax, Jeremy Hunt has made it harder to implement growth-enhancing reforms to the tax system. Labor and other parties should not follow this example.”