Council Tax referendums: power to the people?

ballot box

Since the 2012-13 financial year, council tax increases beyond the government’s limit can trigger local referendums. But are they having an impact on policy?

The Council Tax: before and after localism

Local government spending in Great Britain is paid for by three main sources:

  • central government
  • business rates
  • council tax

The council tax pays for about a quarter of all local services. However, cuts in funding from central government have put pressure on local authorities trying to maintain and improve services. As a result, in recent years many councils have been forced to impose council tax rises. This in turn has generated opposition from local residents and charges from central government that the increases are excessive.

Previously, if ministers believed that local authorities were increasing taxes excessively they had the power to cap council tax rises. However, in 2010, the Conservative general election manifesto promised to give residents the power to veto excessive council tax increases. The measure was included in the coalition government’s programme for government and introduced in the Localism Act of 2011.

The thresholds for council tax rises

The Localism Act, which applies only in England, gives local communities the power to decide on council tax increases above a certain limit.  The Secretary of State for Communities and Local Government determines this limit, which has to be approved by the House of Commons.

If a local authority proposes to raise taxes above the limit they must obtain approval from local voters in a referendum.

For the 2016-17 financial year, the government proposed the following thresholds:

  • local authorities with social care responsibilities – 4% (an extra 2% to fund social care)
  • district councils, Police and Crime Commissioners (PCCs), fire and rescue authorities and the Greater London Authority (GLA): 2%
  • Districts and PCCs whose council tax level is in the lowest quartile of their type of authority may raise council tax by up to £5.00 on a Band D bill (which may be a greater rise than 2%).

This means, for example, that a local authority with social care responsibilities wishing to raise its council tax above 4% would have to organise a referendum on the proposed increase. In addition, the authority would have to make substitute calculations that would take effect if the proposed increase is rejected in the referendum.

Triggering a referendum

In March 2016, a survey by the Chartered Institute of Public Finance & Accountancy (CIPFA) found that many councils are set to increase council tax close to the 3.99% maximum allowed under the referendum cap.

Few councils have so far set council taxes at a level that would trigger a referendum.

In 2015, the Green Party on Brighton and Hove Council failed to secure backing from the other parties for a 5.99% council tax rise. A settlement of 1.99% was eventually agreed, but the Greens said a bigger rise would have helped protect services for the elderly, adults in care, children and those living below the poverty line.

Bedfordshire says “No”

In May 2015, residents in Bedfordshire became the first in the country to vote in a referendum triggered by a decision to raise the council tax. The county’s Police and Crime Commissioner, Olly Martins, increased the amount of the council tax for Bedfordshire Police by 15.84% compared to the previous year. He claimed that the increase would provide funds for more police officers.

However, the rise was rejected by almost 70% of voters, and the council had to issue new bills based on the lower increase of 1.99%.

Mr Martins said the result would mean a reduction of up to 135 uniformed officers from the existing 1,067. He also raised concerns about the rules on the wording on referendum ballot papers and awareness-raising during the campaign.

But Richard Fuller, the Conservative MP for Bedford claimed that the £350,000 spent on holding the referendum, and the £250,000 for re-billing meant that Mr Martins had shown “incredibly poor judgement”.

Here to stay

With only one council tax referendum to consider, it’s still too early to assess the impact such polls may have on policy. However, the costs and time-consuming nature of organising referendums of this kind may be acting as a deterrence to raising council tax bills above the referendum cap.

The government remains committed to the policy of council tax referendums, and has suggested that it could be extended to parish councils. In March 2014, the Labour Party confirmed that there were no plans to abolish the referendum principles. However, there is no guarantee that this will be the party’s policy going into the next general election.

For the foreseeable future, council tax referendums are here to stay.


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Local homes for local people? A referendum in Cornwall could have wider implications for developers of second homes

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St Ives, Cornwall. Image by neiljs via Creative Commons

Last year, a review of rural housing policy highlighted the concentration of second homes in rural areas. The study reported that in many coastal communities and villages in England’s national parks and areas of outstanding natural beauty, second homes make up over a quarter of the housing stock – and in some areas this can be as high as 80%.

From holiday havens to investment vehicles

Around 1.6 million people own second homes (properties that are not the owner’s principal residence) in England and Wales, while in Scotland there are about 35,000 second homes.

Second homes are not a new phenomenon. For many years, rural and coastal properties have been purchased as holiday getaways for city-dwellers. More recently, however, second homes have been snapped up as investments, with many left empty for much of the year.

The pros and cons of second homes

Proponents of second homes point to their positive impacts, including the income, jobs and patronage of services they can generate for hard-pressed local areas. One study has also pointed to the social value of second homes in connecting communities to new skills and knowledge. But critics of second homes claim that they distort the housing market and make it hard for local people to get on the property ladder.

The authors of the rural housing review underlined the effects of second homes on local communities and housing:

“Local people are often unable to compete with these buyers and the need for affordable housing becomes even more acute, but supply is very low. Their exclusion from these villages means there is not a large enough permanent population to support local services. The result is a vicious cycle of decline, leaving behind an ageing and increasingly vulnerable population.”

Changing the rules

The issue has come to a head in the Cornish town of St Ives, where residents will vote next week on a neighbourhood plan that includes a measure reserving all newly-built properties exclusively for local people.

The mayor of St Ives claims that the plan to reserve newly-built properties for locals is crucial to the town’s survival, telling The Guardian:

“You can’t overestimate the contribution of second home owners to the economy, but you have to look at the bigger picture. Where you don’t have a sustainable economy, over time the town will wither away. We don’t want that. We want to maintain a thriving community.”

The 2015 rural housing review recommended that areas experiencing high levels of second home ownership should require a proportion of new homes to be given planning permission with the condition that they can only be used as principal residences.

Council Tax discounts

Since 2013, local authorities have had powers to reduce the level of discount awarded for second homes.  Some councils, such as Hertsmere and Perth and Kinross now offer a 10% reduction on second homes, subject to certain conditions. However, Cornwall County Council has abolished its previous 10% discount. The council is so concerned about the rising number of second homes that it also wants to make conversions of properties to second homes subject to planning permission.

A ‘Yes’ or a ‘No’?

Last summer, two other parts of Cornwall gave ‘Yes’ votes to neighbourhood plans, one of which seeks to ensure that new homes do not add to numbers of second homes and holiday lets in the area. A similar referendum took place three years ago in the Devon community of Lynton and Lynmouth, where residents voted to stop the development of new second homes.

It’s possible that St Ives could follow suit, although at least one developer has indicated that it would challenge the plan under human rights law.

The St Ives referendum takes place on 5 May. While other parts of the country are watching the results for the devolved assemblies, local councils and the new mayor of London, the residents of St Ives will be waiting for a decision that could change the face of its economy. But as housing shortages continue to rise up the political agenda across the country, councils, home owners, planners and developers in other parts of the UK will be waiting for the St Ives result with particular interest.

Understanding the value of public money could be key to council tax reform in Scotland

This week saw the publication of a report by a cross party commission on the state of local government funding, specifically examining the council tax in Scotland. For many years the council tax has been declared as unfit for purpose by politicians in Holyrood. However little has actually been done in the way of reform. As things stand, following John Swinney’s budget announcement, council tax bills remain frozen for the 9th successive year.

The need for reform

The system has been  called regressive, ineffective, and anti-poor (among other things). But while most agree that the council tax in Scotland cannot continue in its current form, there is much disagreement about the new direction for the council tax, and about local government funding more widely.

The council tax freeze in Scotland has meant that in addition to budget cuts, councils have also been under pressure from reduced income. This is not to the advantage of the worst off, as some might assume. Instead, the uneven banding system means that while middle band payers spend 4% of their wages on council tax, those in the highest two bands only spend 2%

Houses-on-coins-by-Images-MoneyThe impact of the freeze

Despite the council tax only making up 2% of council income, it is estimated that the freeze has cost local government in Scotland more than £500m in the last year, and over £2bn since the freeze was introduced. That’s £2bn, commentators argue, which has not been spent on hospitals, schools, policing or community investment at a local level.

However a visible rise in tax bills while services are being cut back would be a difficult one to spin. As observed during a seminar I recently attended,  people feel council tax increases more acutely than other tax increases because they receive the bills through their door. Other taxes are less visible, or happen before the point of cost. VAT rises or stamp duty rises, for example, are not regarded with quite as much hostility by the general public as council tax rises.

At the same time, people don’t seem to realise what they are getting for their council tax, or how much public expenditure actually costs. This needs to change if politicians are going to be truly allowed to reform council tax and to replace it with any number of the other options outlined in the commission’s report.

Alternative options include:

  • a more equal income-based system, only partly based on house value
  • a more localised option, where local authorities are afforded the freedom of selecting numerous smaller local taxes, which would increase accountability and transparency of where the money is going
  • a re-investment model where income taxes are increased, but the value is redistributed to services within a person’s local area, so people know the money they are being taxed on is going directly local services.
  • cutting costs and reallocating tax fund distribution by relocating services, to reassess which services fall under the remit of local government and which should be taken back under national control and adjusting the money given to local government accordingly

Participative budgeting models have also been mooted, but how this would work in practice is not clear at the moment.

Discussion today, or dysfunction tomorrow

One thing is for sure: council tax needs to be reformed, and the report appears to suggest there are two choices:

  • discuss it openly and robustly now to come to a sensible conclusion with appropriate implementation frameworks and a timetable to transition; or
  • wait until local government is not financially functional and the choices are made out of necessity, as a quick fix, with short term goals and outcomes which potentially make the situation worse rather than better.

Value, cost, framing and how people view taxation will be key to these strategies.


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Empty homes … Britain’s wasted resource

Boarded up homes in Kensington, Liverpool. Image by Mikey via Creative Commons.

Boarded up homes in Kensington, Liverpool. Image by Mikey via Creative Commons.

By Heather Cameron

Government statistics indicate that there are just over 635,000 empty properties in England, with a third lying empty for six months or more. In Scotland, there are around 23,000 ‘long-term’ empty homes (unoccupied for six months or more) that are liable for Council Tax.

With increasing house prices and a continuing rise in homelessness, the demand for affordable homes in the UK is unlikely to subside. And with new housebuilding unable to keep up with demand, bringing empty properties back into use would seem an obvious solution that could go some way to easing the housing crisis as well as addressing the blight caused to local communities by empty properties.

Unsightliness, loss of amenity, anti-social behaviour, pest infestations, the devaluing of neighbouring properties and a negative impact on people’s health have all been cited as potential outcomes of empty homes.

However, while the government claims to be committed to reducing the number of empty homes, recent welfare reforms appear to contradict such intentions.

A recent Inside Housing article on empty homes in County Durham, suggested that the bedroom tax has had a direct impact on the increasing number of vacant properties in the area, with many landlords seeing an increase in the number of voids following its introduction. Single people used to be housed in two-bedroom properties (which make up the majority of the empty properties in the area), but this is no longer an option as the bedroom tax cuts the housing benefit of people under-occupying by up to 25%.

This has also had a knock-on effect on the costs to social landlords due to maintaining vacant properties. Local housing association, Accent, estimates that its vacant homes are costing it £600,000 per year due to costs like council tax and security.

Tackling the issue

Despite recognition of the problem, powers to help bring empty homes back into use have seemingly been underused by English councils. Empty Dwelling Management Orders (EDMOs) were only used 17 times in 2014, with councils preferring to use other powers such as council tax charging and compulsory purchase orders, despite EDMOs being specifically designed for the purpose.

A spokesperson from the Local Government Association (LGA) suggests that “the existing powers open to councils are complex and difficult to use. The government should simplify existing powers to support local authorities to bring empty properties back into use.”

In a report at the end of December 2014, the Institute for Public Policy Research (IPPR) has similarly argued that local authorities should be offered an enhanced set of powers to address the problem of empty homes. It recommends two changes to the current rules:

  • The existing cap on the ’empty homes council tax premium’ should be removed, effectively allowing local authorities to determine their own banded premiums charged on long-term empty dwellings.
  • Local authorities should be allowed greater discretion to tax long-term empty dwellings appropriately, and to ensure that those holding on to an empty property contribute more to the economic costs of providing housing for those in need.

Indeed, councils have previously called for the compulsory purchase order system to be simplified to bring empty homes back into use so perhaps such changes would make a difference.

Good practice

There are recent examples of good practice in reinstating empty homes through various approaches, such as homesteading, refurbishing and leasing, and repairing and selling.

Stoke-on-Trent City Council, for example, bid for funding from the Clusters of Empty Homes Fund so that it could renovate 124 long-term empty properties and bring them back into use.  The redeveloped properties were offered for £1 each to carefully selected buyers who had shown they would be actively engaged in the area’s regeneration.

According to the council’s Director of People, this initiative has resulted in the restoration of local pride and a new-found sense of community ownership that will drive lasting improvements.


Further reading

Some resources may only be available to Idox Information Service members.

Playing ‘house’ (redevelopment of empty homes), IN MJ, 15 Jan 2015, p21

Tackling the housing crisis: alternatives to declining standards, displacement and dispossession (2014) Centre for Labour and Social Studies

Re-imagining regeneration: empty and difficult to let homes (2014) National Housing Federation

Landlords revise threat of universal credit after delays, IN Inside Housing, 5 Dec 2014, pp10-11

Broken market, broken dreams: let’s end the housing crisis within a generation (2014) National Housing Federation

Ideas for change: community-led self-help housing, IN New Start, No 526 Nov 2014, pp1-7

Filling the void (Helena Partnerships and the private rental market), IN Inside Housing, 24 Oct 2014, pp28-30

Cutting back on waste (bringing empty homes back into use), IN Property Journal, May/Jun 2014, pp44-45

Evaluation of the Empty Homes Community Grants Programme (EHCGP): Midlands region (2014) University of Birmingham