This paper gives a brief summary of the structure of inheritance tax before looking at the debates there have been about the tax in recent years.
The Local Authorities (Removal of Council Tax Restrictions) Bill 2017-19 is expected to receive its Second Reading in the House of Commons on 1 December 2017. Its First Reading took place on 5 September 2017.
The Bill is a Private Member’s Bill, promoted by Christopher Chope MP. The Bill can be found on the Parliamentary website.
Council tax referendums
The effect of the Bill would be to abolish the regime of council tax referendums introduced via the Localism Act 2011, which took effect from the 2012-13 financial year. This allows the Secretary of State to set annual thresholds for different classes of local authority in England, above which authorities may not increase their council tax without approval in a local referendum (‘referendum principles’).
The functioning of the referendum regime is outlined in detail in the Library briefing paper Council tax: local referendums. In most financial years since 2012-13 the majority of authorities have been set a threshold of 2%. The recent introduction of the ‘social care precept’ has seen this rise to 5% for county and unitary authorities in 2016-17 and 2017-18. Referendum principles can also be set for parish and town councils in England, though the Government has never done this.
Referendum principles are normally published alongside the local government finance settlement, which is typically published in draft form in December and final form in February in advance of the beginning of the following financial year in April. The Government published a consultation in September 2017 which set out its intentions for referendum thresholds for the 2018-19 financial year.
The legislation on referendums superseded provisions for ‘council tax capping’. This permitted the Government to require authorities which it believed were increasing council tax by an excessive amount to reduce it. This had been in operation since the introduction of council tax in 1993, and the principle of reserve powers to limit local taxation decisions dates back to the Rates Act 1984.
Clause 1 (1) of the Bill provides that a ‘principal local authority’ in England would be able to set any level of council tax that it chooses.
Clause 1 (2) (b) of the Bill would apply the provision in clause 1 (1) to the classes of authority set out in section 69 (3) of the Local Democracy, Economic Development and Construction Act 2009. The definitions in that section would exclude district councils in two-tier areas, Police and Crime Commissioners, fire and rescue authorities, parish and town councils and the Greater London Authority. However, the repeal provision in clause 2 (1) would remove the power to set referendum principles for these classes of council.
Clause 2 (1) of the Bill repeals the Part of the Local Government Finance Act 1992 that provides for the setting of referendum principles. This Part was introduced via Schedule 5 of the Localism Act 2011. Clause 2 (2) repeals schedule 6 of the Localism Act 2011, which consists of amendments consequential on Schedule 5.
Local government is a devolved matter in Wales. Although the Bill formally extends to England and Wales, the power to set referendum principles does not apply in Wales. The National Assembly for Wales still holds powers to cap local authorities’ council tax in Wales (see the Local Government Finance Act 1992). The Bill would not affect these powers of the Assembly.
The Bill would have no effect on council tax valuation or the setting of bands for council tax, or on collection and enforcement practice.