In Defence of Liberty

Driven by data; ridden with liberty.

Students and Council Tax

There is much consternation over the issue of students paying council tax. (Edited: Simon Giddings)

There is much consternation over the issue of students paying council tax. (Edited: Simon Giddings)

Students and council taxes are the subject of raucous consternation, given the exemption for full-time students. Following a successful motion at the Bath and North East Somerset (B&NES) Council, a panel will consider proposals to apply business rates to student accommodation.

There are multiple earnest questions fashioned around this topic. In the letters section of the Bath Chronicle newspaper, a local resident asks:

Can someone tell me why student properties aren’t businesses?

Student houses and properties are not considered businesses because they are houses. In the Local Government Finance Act 1988, there are two classifications of properties: domestic and non-domestic. Excluding short-stay accommodation, such as hotels, places of residences are considered domestic properties, and so domestic rates – colloquially called council taxes – are applied. Since local governments are financed for its rendered services, it is normally the tenants and occupiers who are expected to pay these rates, rather than the owners. If the property is empty, owners are levied a reduced amount. In Bath and North East Somerset, the council “assumes the occupiers are liable for full Council Tax”.

It is asinine to pretend that a landlord is not running a business when they provide housing to families, but that landlord is running a business when offering rented accommodation to students.

The same resident then asks:

Why is it considered fair the residents of university cities like Bath have to subsidise students?

For the sake of their studies, full-time students usually eschew employment. Beyond supportive grants and the maintenance loan – provided by the Student Loan Company, a government-owned organisation – they would have no means of payment. Maintenance loans could increase to cover these charges, but this is one hand of government paying another. This would surely share many objections with the status quo.

Most full-time students would likely qualify for council tax reductions for having low incomes. Removing the specific exemption may not substantially change the council’s financial position. Heretofore, local councils received a block grant from the central government to cover costs associated with the student exemption. The officers of B&NES Council state: “The government grant calculations are extremely complex and it is no longer possible to track through specific elements of funding.” From 2013-14, the grant position is “effectively fixed” until its next reset in 2020.

Full-time university students do pay taxes, like VAT, just not directly to their local council. Council tax exemptions cover groups that are, typically, economically inactive. As with all taxes, people who are unable to pay have to be ‘subsidised’.

Next, a commenter suggests:

Why don’t landlords pay council tax and be forbidden from passing it on?

The proposal would necessitate local councils introducing rent controls. This policy has a rich history of failure: rent controls induce higher demand, whilst restraining the housing supply. American economist Thomas Sowell notes no houses were built in Melbourne in the nine years following World War II, due to restrictive rent controls.

Both student halls of residence and houses shared between students are exempt from council taxes. Reductions, but not exemptions, are applied if there are non-students in the shared house.

If the landlords were charged domestic rates, the burden of this taxation – whether partial or total – would fall upon their tenants. In 2011, the housing charity Shelter found that Bath and North East Somerset had the fifth most expensive rents within the South West, which were “unaffordable”. Pursuing a policy that would foster the flames of further rent rises appears unwise.

Being a student is a temporary state. Proponents of this reformed levy should avoid the dangerous conflation between ‘contributing to society’ and paying a particular tax.

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This entry was posted on December 19, 2014 by in Local Politics and tagged , , , .
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