Where does my Council Tax money go?

We take a closer look at the monthly bill that riles loveMONEY readers the most.

In a recent loveMONEY poll, a massive 51% of you said Council Tax was your most hated bill.

This annual tax on households beat off competition from energy bills (14%), water bills (10%), mortgages (10%), broadband (6%), TV bills (5%) and phone bills (4%) by a very long way.

But does it deserve to be so reviled? We take a closer look at how the bill is calculated and what it pays for.

How Council Tax is calculated in the UK

The Council Tax system was introduced in 1993, following the disastrous failure of the Community Charge (Poll Tax), which was meant to replace the old rates system based on the rental value of homes.

The amount you have to pay is set by the local council each year and differs according to the amount of money a council needs to raise and the valuation band your property falls into.

In England and Scotland, the bands range from A-H, with A being the cheapest. These bands are based on valuations on homes made in April 1991.

In Wales the bands range from A-I, again where A is the cheapest, and are based on more up to date valuations made in April 2003.

Northern Ireland didn’t make the switch to Council Tax in the 90s and kept the old system of domestic rates based on rental values.  

But in 2007 it modified the system based on the capital value of individual properties. The Council Tax system of property bands was not adopted though, so domestic rates bills continue to be set individually.

Where your Council Tax money goes

Council Tax is one of the main sources of income for most local authorities.

The money helps them to deliver services for local people and serves to boost the money it gets from central government and local business rates.

It’s up to individual councils to decide where the money is spent. In general councils will divvy money between categories like:

• Road maintenance, repairs and street lighting
• Local transport services like buses
• Children’s social care
• Support for elderly and vulnerable
• Supporting children’s education
• Preventing homelessness through social housing
• Libraries, arts, museums, leisure and recreation services
• Maintaining parks and open spaces
• Waste collection, recycling and disposal
• Street cleaning and flood defences
• Administration of licences, permits and housing benefit
• Planning and building control
• Other services like coroners, courts, registrars, elections and tax collection
• Long term investment

In March 2015 the Local Government Association (LGA) broke down how every £1 of Council Tax was allocated by English councils on average during 2013/14 and predicted how that would change by 2019/20. We've used that data to work out exactly how much of the average £1,468 paid in 2013/14 went to each type of service.

*Includes combined income of Council Tax, business rates and grants.

** The average Band D Council Tax bill for 2013/14 was £1,468

Source: LGA

Your local council should breakdown exactly what it spends on services in your community. For example, Salford and Mid Sussex give a pretty thorough overview.

Why is Council Tax hated?

Few would say the services the money we pay to support are unimportant, especially the care of the vulnerable and the upkeep of the area we live in.

But Council Tax is riddled with problems.

One of the major issues is that Council Tax is based on out of date property values, which skews how much people pay.

The tax is also regressive, which means it takes proportionally more from low income households than high income households because of its flat rate. An Institute for Fiscal Studies report in 2014 described the tax as "being deliberately regressive in its design".

Another problem is its impact on household finances. The average Council Tax bill in England for example has shot up well above inflation since it was introduced, from an average of £470 in 1993 to £1,530 in 2016/17. Despite councils receiving over £5 billion from the Government between 2010 and 2015 to help curb rises, the bill is one of the biggest expenses for households in the UK.

What’s more the help for those unable to pay has dried up thanks to Council Tax Benefit being scrapped and replaced with Council Tax Support. Now local authorities have to set up and run their own schemes and have a reduced budget with which to do it. Read Council Tax debt now biggest problem for households for more.

According to the Local Government Authority (LGA) in its 2015 Future Funding report, funding received by central government has reduced by 40% since 2010. This, along with pressure to keep Council Tax bills down, is putting a strain on local authorities.

Chair of the LGA, Councillor David Sparks, warned: "It is likely that people will be paying similar levels of Council Tax over the next few years but most will see a lot less in return. People are rightly going to question why their streets and parks are less well kept, the local library is closing and bus services are being cut when they are still paying roughly the same Council Tax each month.”

How to cut your Council Tax bill

If you want to reduce how much Council Tax you pay, there are a few things you could try.

You can ask for your Council Tax Band to be revalued. As property prices haven’t been revisited for a while you may have moved into a different band, so you could be paying more than you need to. Be careful though as your property may have increased in value and therefore could shift into a more expensive band.

There are also a range of discounts, reductions and exemptions you could claim. Sole occupiers for example get a 25% discount on their bill, while there’s a 50% discount for properties with an annexe and there is a reduction scheme for disabled people. Properties occupied by full-time students are also exempt.

For more read How to slash your Council Tax bill.

Earn up to 5% from your current account

More from loveMONEY:

How to haggle and save a fortune

Simple ways for older Brits to pay less tax

Stealth taxes that will hit you in 2016: from Stamp Duty and Council Tax to dividends and pension tax relief