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Last Updated: Thursday, 15 December 2005, 22:56 GMT
What is the future for council tax?
By John Andrew
Local government correspondent

If the government had stuck to its original timetable, Sir Michael Lyons would already have told us how he thinks council tax should be reformed.

But the government extended his remit to include the functions of local government - so his final report will not be with us until next year.

Council Tax notice
Sir Michael Lyons wants to make council tax fairer
What he has now published is an interim report, and research setting out the challenges but also giving us some interesting clues about how he might be thinking.

His research also sheds more light on why the government performed what it admits was a spectacular U-turn by halting the planned revaluation of homes.

Sir Michael's calculations show that if the exercise had gone ahead some four million homes would have ended up in a higher property price band and so faced bigger bills - many of those in the South and South East.

Relief for them, then, that revaluation has been delayed but what about the 3.6 million homes that would have gone down - and would have enjoyed lower bills?

It is no secret that Sir Michael was against delaying revaluation by anything more than a year.

People in higher bands may be wealthier by owning a more valuable house but won't necessarily have a higher income
Sir Michael Lyons

We now face the absurd situation where, because there will be no revaluation until after the next general election, it could be at least 2011/12 before we get council tax bills based on up-to-date prices and not on values taken in 1991.

It is clear from Sir Michael's report that he is considering the idea of adding more property price bands to the council tax.

An additional two at the top and a further two at the bottom would make the tax more progressive - allowing those in the very cheapest homes to pay less and asking those in the most expensive to pay more.

Under this 12-band system his figures show that there would be more winners than losers.

But Sir Michael adds a cautionary note, saying that it does not have a big impact on fairness.

Sylvia Hardy
Council tax rebel Sylvia Hardy was jailed for non-payment of her tax
He says: "People in higher bands may be wealthier by owning a more valuable house but won't necessarily have a higher income."

It is a dilemma that lies at the heart of the fairness problem and the same one that bedevilled the old rates.

Intriguingly, though, Sir Michael is also looking at the proposals for Northern Ireland which, unlike the rest of the UK, has never had the poll tax or council tax but carried on with the rates.

Its adoption of the council tax envisages a system based not on putting homes into wide price bands but valuing them individually.

That would mean much more progression from bottom to top and Sir Michael told me it could be seen as the fairest approach.

Remember, though, he has made no decisions yet.

So what is he most likely to recommend in his final report next year?

Well Thursday's report makes pretty clear that, whatever else he comes up with, he sees improving the council tax benefit system as "the most direct means" of making the tax fairer.

Expect to see moves allowing people to earn and save more before losing the right to help, and maybe changing it from a benefit to an entitlement - perhaps through the Inland Revenue - to make sure the 1.8 million who are not claiming now get the help they need.

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