"Revolutionizing Local Taxation: CIPFA Proposes Charging Council Tax on Undeveloped Land"

The Chartered Institute of Public Finance and Accountancy (CIPFA) has been at the forefront of discussions to reform the UK's local taxation system, particularly focusing on council tax. Recently, attention has turned to a novel approach: charging council tax on undeveloped land. This proposal aims to tackle the issue of land banking, where land suitable for construction remains unused, and could potentially boost local government revenues while encouraging development.

Background: Council Tax and Local Taxation

Council tax is a key component of local government funding in the UK, introduced in 1993 to replace the community charge. It is levied on domestic properties based on their market values, categorized into eight bands from A to H, with Band D serving as the baseline for calculations[4]. However, the system has faced criticism for being regressive, as it does not account for changes in property values since the initial assessments in 1991[2].

CIPFA has been advocating for reforms to make the taxation system more progressive and locally empowering, addressing the financial pressures faced by councils and the need for greater fiscal autonomy[2]. The proposal to extend council tax to undeveloped land aligns with these goals by leveraging underutilized resources within communities.

The Case for Charging Council Tax on Undeveloped Land

Charging council tax on undeveloped land is not a new concept but has gained traction as a potential solution to several longstanding issues:

• Land Banking: A significant problem in the UK is land banking, where developers hold onto land without developing it, waiting for its value to increase. This practice stifles housing supply and contributes to the national housing shortage[1].
• Revenue Generation: Local authorities face increasing financial constraints due to budget cuts and rising demand for services. Charging council tax on undeveloped land could provide a new revenue stream without directly impacting residents.
• Incentivizing Development: By taxing undeveloped land, developers would face increased costs if they choose not to build, potentially encouraging faster development of housing and commercial projects.

Proposed Approaches

Several approaches have been suggested or implemented in different parts of the UK and Ireland:

• Full Council Tax on Unbuilt Properties: In 2021, the Levelling Up, Housing and Communities Select Committee recommended charging full council tax on uncompleted units three years after planning permission is granted[1]. This proposal aims to discourage land banking by imposing financial penalties on developers who delay construction.

• Vacant Land Taxes: The Welsh Government has explored implementing a vacant land tax to encourage development. Although the specific details are still under discussion, the principle is to increase the cost of holding unused land[1].

• Vacant Sites Levy in Ireland: The Republic of Ireland has a vacant sites levy, which charges a percentage of the site's value annually if it remains undeveloped for over a year. This levy is to be replaced by a Zoned Land Tax at a lower rate for serviced and zoned residential land[1].

Potential Challenges and Considerations

Implementing such a system would require careful consideration of several factors:

• Fairness and Equity: The system must ensure that it does not unfairly penalize small landholders or farmers who may not have the resources to develop their land immediately.
• Exemptions and Discounts: There may need to be exemptions or discounts for landowners who are genuinely trying to develop their land but face delays due to factors beyond their control, such as planning disputes or environmental concerns.
• Administrative Burden: Local authorities would need to manage this new tax efficiently to avoid additional administrative costs that could offset potential gains.

The Future of Council Tax Reform

Reforming council tax to include undeveloped land aligns with broader efforts to modernize local taxation, making it more responsive to contemporary fiscal challenges. This initiative could go hand-in-hand with other proposed reforms:

• Revaluation and Rebanding: Regular revaluations and rebalancing of tax bands could ensure that the system remains fair and reflects current market conditions[2].
• New Taxation Models: Exploring alternative models like local income taxes or wealth-based taxes could provide more progressive and sustainable revenue streams for local governments[2].

Conclusion

As local authorities face unprecedented financial pressures, innovative solutions like charging council tax on undeveloped land offer potential for both revenue generation and policy alignment with national housing goals. While challenges exist, this proposal could become a critical component in the broader reform of local taxation, fostering a more equitable and efficient system that supports community development and fiscal stability.

Incorporating such measures into local tax policy could not only enhance fiscal resilience but also contribute to a more dynamic and sustainable approach to land use and development, benefiting both local communities and the national economy.