Charlie Elphicke is a partner with a leading international law firm, a research fellow of the Centre for Policy Studies and Deputy Chairman of the Cities of London and Westminster Conservative Association. Mark Field MP is Member of Parliament for the Cities of London and Westminster.
> Policy Summary
To halve Council Tax for pensioners whilst modernising public sector pensions.
> Policy Explanation
Council Tax has increased dramatically since Labour came to office. Government figures show that Council Tax for the average household is £898, up from £412. A rise of 118%. The most recent budgets have placed even greater administrative burdens on local authorities without commensurate central government grants. Nowhere has this rise been felt more strongly than by pensioners. Here is why:
- The average Council Tax paid by pensioners amounted to £720 after Council Tax Benefit according to the latest available figures from the Office of National Statistics (ONS). Meanwhile, the average income of all pensioners after state pension was £13,336.
- This compares with the average pre-tax income of working age households being £35,954 in 2004-05. The ONS figures show that the average Council Tax of non retired households was £874 after Council Tax Benefit.
- Council Tax therefore equates to 2.4% of the pre tax and benefits income of non retired households. Meanwhile, it is equal to 5.4% of the pre tax and benefits (but taking into account the state pension) income of retired households.
So it is not hard to understand why so many older people feel very angry about Council Tax. And it can immediately be seen why Council Tax reform for pensioners is not a "good to have", but a matter of fundamental fairness for pensioners. Halving Council Tax for pensioners would reduce the burden of this tax into line with the burden it has on everyone else.
> Political risks and opportunities
The reform of Council Tax would be real step forward in providing help to pensioners who have been really let down in recent years. The issue is going to be cost. We Conservatives are now to fiscally responsible party that believe in stability and reject so called unfunded mandates. So we see the Council Tax reform being paid for by the parallel modernisation of public sector pensions. In our view this is about fairness for the many, not the few. With this reform, pensioners will celebrate, yet public sector workers are much attached to the incredibly generous benefits they get and are less likely to be so enthusiastic.
> Questions for Conservative Home readers
- Other than Council Tax, what more can we do to help pensioners, who have really suffered under this Labour Government?
- If we were to reform public sector pensions, should we do so in a “big bang”?
- The savings from the modernisation of public sector pensions will take time to come through. How should we best handle the timing gap – e.g. borrow in the meantime or filter through the savings as and when they arise?
- Does this reform proposal sail too close to the winds of hypothecation. This is the tying together of tax and spending which the Treasury very strongly dislikes (for a number of very good reasons). If so, do we care or should these reforms be presented as entirely separate policies?
> Costs
The cost of halving Council Tax for older people will be £2.35bn on the basis of the ONS 2004-05 figures. So the current estimated cost of this policy is £2.5bn.
The Council Tax reform is intended to be paid for by the parallel modernisation of public sector pensions. This modernisation would mean greater fairness as between public sector workers and move the retirement age to 65, as it is for everyone else in Britain. This modernisation will save in excess of £2.5bn over time calculated as follows (numbers obtained from expert actuaries):
- All civil servants retiring at 65 will save £2bn – but over time;
- The schemes are all 1/80ths across the board will save £170m; and
- All civil servants make contributions which are fair (i.e. 6%) will save £520m
A further benefit of the modernisation of public sector pensions would be to reduce the long term liabilities of the nation. For further details of these liabilities and why this reform would therefore be doubly attractive, see the recent Your Platform piece by Brooks Newmark MP. Brooks Newmark sets out a useful summary of the position described in the paper Simply Red: The True State of the Public Finances (Brooks Newmark MP and Stephen Hammond MP).
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