OAPs 'should pass tax bills on to heirs'

Pensioners should be allowed to 'bequeath' council tax liability to their children, says leading Blair ally

Pensioners faced with large council tax bills should be allowed to pass the problem on to their heirs by borrowing the money as a charge against their homes, a leading ally of Tony Blair will propose this week.

Stephen Byers, the former secretary of state for transport and local government, believes that pensioners living in valuable homes should be allowed to pay no council tax at all, making the bills a charge on their property.

Speaking to the New Local Government Network conference on Thursday, Mr Byers is due to say: "A deferred-payment scheme would provide all pensioner owner-occupiers with a choice - either to pay the tax as it falls due or to defer payment until the family home is sold or otherwise transferred.

"Such a scheme is simple, not means-tested and uses the value of the home as security for the tax liability."

The scheme would bring immediate relief to hundreds of thousands of "asset-rich, cash-poor" pensioners, who are being sent bills for four-figure sums to be paid out of small, fixed incomes.

But it is likely to receive a cool reception from the Chancellor, Gordon Brown, because the Treasury would have to lend local councils the money they are not collecting from pensioners and recover it years later.

It would also deliver an unwelcome shock to sons and daughters waiting to inherit the proceeds from the sale of their parents' house and who find a huge council tax bill attached. The Government has acknowledged that there are serious problems in the council tax system - invented in a hurry by the Conservatives after the fall of Margaret Thatcher as a means of replacing the hated poll tax.

One of the biggest is the 1.25 million pensioners who are entitled to council tax benefit but are not claiming. This may be because many are put off by the stigma of receiving state benefit, or they may be deterred by the complex 24-page form that they have to fill in.

The Office of the Deputy Prime Minister is now looking at ways of simplifying the system, so that it is easier to claim and is seen as a rebate rather than a state handout.

The tax was devised in a way which has ensured that the amount which businesses contribute to the costs of local government has fallen relative to the bills sent to householders, although business have continued to use council services.

Facing the threat of a widespread pensioners' revolt when this year's council tax bills arrive, the local government minister, Nick Raynsford, has sent warning letters to more than 60 councils, threatening to force any councils that are planning unreasonable council tax increases to cut spending instead.

The public has begun to see council tax bills as a form of "stealth tax" for which the Labour Party is held responsible. But Mr Raynsford has persistently claimed that Conservative- and Liberal Democrat-run councils are the worst offenders. He said last week that the increases proposed by Labour councils average less than 5.5 per cent.

An even bigger problem looming on the horizon, however, is the nationwide property revaluation due in 2007, the first for 15 years, which could lead to huge increases for householders in parts of the country where house prices have risen disproportionately.

The Government is so worried by the prospect of what could ensue from the revaluation that ministers are thinking of ending the present system under which there is one "banding" system for the whole of England, replacing it with regional bands.

Under the present system, houses valued at less than £40,000 when the council tax was first introduced are in the lowest band, band A, and those that were then worth more than £320,000 are in the top band, band H. The figures apply throughout England.

Unfair system takes no account of income

Clive Hutton is angry. The pensioner's council tax bill has just landed on his doormat and it's a massive £1,870 for his band G, four-bedroom detached home.

If the Government doesn't act, he is vowing to join a growing band of pensioners refusing to pay the tax. "I was going to withhold the payments this year but I decided to wait until next year to see if any changes were made," said Mr Hutton, 65.

His hostility towards the tax is that it is based solely on the value of the house and takes no account of income. While he and his wife struggle by on an annual pension of £16,000, their next-door neighbours in Marshal Close in Alton, Hampshire, Rosemary and Andy Dennahy, have a combined income of £91,000 - yet pay the same council tax.

"I think that we have been heard by Hampshire council and they know that we are angry," Mr Hutton said, "but there just seems to be no limit to the amount that the council can put the tax up by."

Mrs Dennahy, a 47-year-old finance manager, agrees that the system is unfair and should be changed. She said: "It does not seem fair that everyone has to pay according to the value of their house without taking into account their income."

Caroline Grant