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Levelling with Property Owners

February 9, 2014 6:02 PM
By David Cooper

The Somerset Levels are flooded, and the Environment Agency is taking flak. But a quick look at way that tax is collected for drainage shows that trouble was inevitable.

In England and Wales, Internal Drainage Boards (IDB) are responsible for providing flood protection. Flood protection is rather like insurance, in the sense that money has to be invested upfront, to decrease the risk of loss of property in the future. Unlike insurance however, flood protection cannot be implemented for each property individually. It therefore has to be implemented publicly, and financed through taxation. According to Wikipedia, all properties within a drainage district are deemed to derive benefit from the activities of an IDB. Every property is therefore subject to a drainage rate (i.e. a tax) paid annually to the IDB. So far so good.

The trouble lies with the way that the burden of paying for drainage is divided between property owners. Agricultural land and buildings are subject to a uniform rate based on their annual rental value- so the amount farmers pay is proportional to the benefit they receive.

But domestic properties pay indirectly through a precept on their council tax. A typical band H property value is worth 4 times more than a band D property. But the band H owner only twice as much council tax. Thus he or she "insures" a 4 times greater property asset for only twice as much money. The owner of the cheaper band D house may well wonder whether this is a good deal. It seems that many lower rate council tax payers have worked out they are being fleeced, so there is strong downward pressure on council tax. This reduction in revenue in turn puts pressure on flood defence budgets raised from local taxation, leading to a clamour for central funding.

Land Value Tax is not necessarily the only answer: floods damage buildings as well degrading property, so it is reasonable to include the value of buildings in the taxable levy. Property taxes should rise in proportion to property values, and should not be capped.

We have seen pictures of weeping property owners on national television lamenting the damage to their beautiful homes. A bit of unemotional thought about how to make sure that taxes which benefit particular property owners are paid by said owners, in proportion to the benefit, might have avoided this distress.