Welsh government launches land value tax study

Mark Drakeford, Cabinet Secretary for Finance and Welsh Language, began his statement by saying that fairness is at the heart of the Welsh approach to local taxation. He explained that, unlike in England, where many of the poorest residents pay significant council tax from limited benefits, Wales has maintained a rules-based, Wales-wide council tax reduction scheme—supporting nearly 260,000 families annually. He continued that the Local Government Finance (Wales) Act 2024 marked a major milestone as it introduced a statutory duty for five-yearly council tax revaluations, making Wales the only UK nation to commit to such regular updates. This ensures that council tax reflects current property values.

The minister said that, as well as abolishing “the scourge of imprisonment” for non-payment of council tax, capping court fees and making the rules right for care leavers in Wales, “we are now consulting on further measures to make the system fairer yet”.

Drakeford noted that, for the first time in over 30 years, the government has conducted a comprehensive, system-wide review of more than 50 discounts, disregards, and exemptions that have accumulated over that period. While the proposal to maintain the single-person discount is set to remain, other changes are being considered.

“We are consulting on important actions to reform enforcement practices when households fall into council tax debt”, added the minister, who believed that the current system penalises those who struggle to pay. He also said that the government is introducing a new, simplified appeals process to make it easier for taxpayers to challenge decisions.

Drakeford concluded his statement by announcing that the government is also exploring a general anti-avoidance framework for non-domestic rates to close loopholes, as well as long-term alternatives to current local taxes, including a local land value tax. This could potentially replace council tax or business rates in the future.

He explained: “I am anxious to see this discussion move beyond the theoretical and into the realms of the practically possible. Over the past few weeks, we have invited tenders from those who can come forward with projects to test approaches to valuing land. Although the sector was slightly sceptical initially, I'm pleased to say that tenders have been submitted for every aspect of this work. These tenders include innovative proposals, using new technological possibilities that may help to resolve practical challenges as we value land in the future.”

Peter Fox, Welsh Conservative shadow minister for finance, welcomed the announcements. However, he believed that the ‘underfunding’ of local government needs to be addressed, so that council tax increases can be moved back to a more sustainable level of 2 or 3 per cent (as opposed to this year’s average of 7.2%). He said that the levels of overall funding to local government are inadequate and asked for the funding formula to be reviewed to ensure that all councils were funded fairly, and reduce the need for some councils to demand excessive council tax levels.

The minister responded that the level of council tax rises is a matter that concerns local council tax payers, but “the problem is not that the Welsh government unfairly fails to pass on funding to local authorities, it's that the money hasn't been there to do that”. He added that “while almost every local authority in Wales will agree that the formula needs revision, nobody can agree on how that should be done”, with every local authority arguing that the formula uniquely disadvantages them.

Heledd Fychan, Plaid Cymru spokesperson for Finance, welcomed the consultations and raised questions about exemptions for furnished vacant properties and the impact of high council tax on empty homes. Was there an intention to introduce a vacant land tax, she asked.

Drakeford replied that the questions on exemptions and premiums are all ‘caught up’ in the current consultation exercise. He suggested that there's evidence that the ability of local authorities to have a higher rate of council tax on empty properties is having an impact, adding, “More local authorities are using it, more local authorities are raising the rate of council tax that they are able to levy on empty properties”.

Mike Hedges (Lab) stated: “I'm sure everyone in the Senedd supports fairer taxes, although perhaps we all have different views on what fairer taxes are… I continue to ask that council tax be directly proportional to house prices”. He asked why, as city and town centre sites have a higher land value, a land value tax would not have retailers leaving city and town centres to out-of-town sites?

The minister emphasised that taxation is essential for funding public services and that house prices serve as a “proxy for wealth”. On a land value tax he said that the advocates of such a tax “would say that they would go a great deal of the way towards reviving city and town centres because of the way in which they promote the beneficial use of the land at its most effective value”. He explained further that, over the coming year, the Welsh Government will carry out “some of the most practical investigation of how you can attach a value to land, one of the big stumbling blocks in implementing land value taxation, and I think we are in a position where there are new techniques, new data sources, new ways of being able to use that information to try and make some inroads into that policy challenge”.

You can read the full debate here.