The claim comes from Resolution Foundation in its Money, Money, Money report, published as part of the think tank’s Unsung Britain project, with support from JPMorgan Chase.
Resolution Foundation said council tax is increasingly resembling the dreaded poll tax that it replaced, with poorer households spending an ever-greater share of their income paying it.
The report finds that, compared to a generation ago, households across the poorer half of Britain get a greater share of their income from earnings – rising from 63% in 1994/95 to 68% in 2022/23.
This welcome rise reflects the fact that poorer households are more likely to be in work than they were in the mid-90s; the employment rate for people in these households increased by nine percentage points between 1996/97 and 2022/23.
Rising council tax bills
When it comes to poorer households’ outgoings, one of the fastest growing areas has been council tax, for which the average bill rose by 77% in real terms between 1994/95 and 2020/21.
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Rising council tax bills – and, particularly, falling support to help households pay for it – have meant that by the start of this decade (2020/21), the poorest fifth of households spent 4.8% of their gross household income on the tax, up from 2.9% in 2002/03. With basic bills rising by up to 5% in England this coming year, or more in the case of six councils, this trend could intensify further.
The far slower growth of income tax spending among poor households – up from 4.7% to 5.9% over the same period – means that they spend only £300 less (in current prices) on council tax than they do on income tax per year.
The foundation adds that council tax is a hugely – and increasingly – regressive tax. The poorest fifth of households spend more than three times as much of their income on council tax as the richest fifth of families do (4.8% versus 1.5%). In contrast, the richest fifth of households spend more than three times of their budgets on income tax as the poorest fifth (21.6% versus 5.9%).
Lalitha Try, economist at the Resolution Foundation, said: “The incomes of poor households haven’t risen enough in recent decades, as the UK economy has stagnated. But where their money comes from and what it is spent on has changed considerably.
“Two bursts of rapid jobs growth in the late 1990s and 2010s mean that earnings play an ever more important role in shaping lower-income households’ living standards, while social security benefits contribute less.
“Council tax is consuming a larger share of their poor families’ household budgets, who are spending almost as much on these bills as they pay in income tax. This terribly designed tax increasingly resembles the very thing it was meant to replace – the dreaded poll tax.”
