House prices 30 years ago determining who gets UK energy rebates

London

AN arcane housing price system being used to determine who gets financial support to cope with soaring energy bills means millions of Britons who don't really need it will be eligible for state aid.

The UK government is spending £9 billion (S$16.5 billion) to help soften the blow of a 54 per cent increase in energy bills, but more than a third of that is tied to a controversial local tax linked to the value of properties 30 years ago. As a result, people in trendy neighbourhoods where houses sell for millions of pounds will be entitled to a rebate originally intended for the poorest households.

Take the case of Waltham Forest, a hip part of London that once housed thousands of factory workers but is now better known for being the birthplace of David Beckham. Houses there sell for more than half a million pounds, double the national average, but 90 per cent of households will be entitled to the £150 rebate announced by Chancellor of the Exchequer Rishi Sunak recently. All because the aid is tied to the value of their homes as assessed in 1991.

"I don't think it's a particularly useful way of dealing with a problem that needs to be addressed," said Max Glazer-Munck, a 37-year-old finance director at a marine conservation charity who lives in one of the wealthiest parts of Waltham Forest, where houses near the desirable Orford Road sell for about £1.5 million. "It isn't getting help to those who need it."

When Sunak announced a raft of measures to help Britons cope with a cost-of-living crisis, he argued that the government opted against cutting a 5 per cent tax on energy bills because that would also apply to the wealthy. But the council tax approach is also proving tricky, with the Institute for Fiscal Studies (IFS) estimating more than half of the country's top 20 per cent earners will be entitled to the rebate, whereas more than 10 per cent of the lowest earners won't get it at all.

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"Of course, there are rich people who live in less expensive homes, and poorer people who live in more expensive ones," said Tom Waters, a senior research economist at the IFS. "This approach means that some money will go to those who are fairly high income while others who are less well off will be left out."

Britons pay a tax to their local authority for things like maintaining roads, street lighting and trash collection. Homes are classified from A to H, depending on what the property value was in 1991 - a time when the UK was enduring a recession caused by high interest rates, falling home prices and a strong pound. Property costs across the country have more than quadrupled since then, but fixing the outdated system would be an ordeal.

"We have no plans to reform council tax," the Department for Levelling Up, Housing and Communities said in a statement to Bloomberg. "This would be expensive to undertake" and could also result in higher tax bills.

The problem for the Treasury is that there's no easy way to measure an entire household's income, said Waters of the IFS. Data only exists for individual income through the tax system. They could have delivered the rebate to the poorest people through the benefits system, but that would miss middle income earners who will also be struggling to pay their bills, he said.

Sunak's plan also includes a £200 upfront discount on domestic energy bills applied from October to be repaid over 5 years, and a £144 million fund to support vulnerable people, many of whom don't pay council tax. But there are still many questions, including how renters will receive the rebate, with measures being labelled by consumer groups as "woefully inadequate" and "strange, complicated and untargeted".

The UK is facing a cost-of-living crisis which is only set to get worse. Prices of everything from food to fuel are soaring and inflation will top 7 per cent when the massive increase in energy bills takes effect from April. Rising prices will leave 1 in 6 households unable to afford consistent heat and electricity.

The Treasury's payout is only enough to cover a month of energy costs and there is still the risk that this support could be swallowed by council tax increases, according to Peter Smith, policy director at the fuel-poverty charity National Energy Action. "It looks good on paper, but won't support those who need the help the most," he said. The Treasury said its support for energy bills is worth 5 times more for the 10 per cent poorest households than to the 10 per cent richest.

In Waltham Forest, an influx of young professionals now inhabit the Victorian-era houses of the Walthamstow neighbourhood and commute to the City to work using the very same suburban lines that factory workers once did. The area has changed hugely since Glazer-Munch moved there with his wife in 2014, with homes near Orford Road - dubbed by locals as "the village" - now worth as much as 15 times more than in 1991.

Like millions of Britons, Glazer-Munch will be getting the £150 rebate even though he can afford to pay his energy bills. Using the old-fashioned system means about 81 per cent of homes in England will receive the aid, a move that could help Prime Minister Boris Johnson's Conservative Party ahead of local elections in May.

"It used to be a bit down at heel with more gambling shops and dive bars than anything fancy; now there are four coffee shops, a couple of fancy hairdressers and a redevelopment with a new library and flats," Glazer-Munch said. "Walthamstow is something of a mix but there will be many people who won't be pushed into poverty by this bill increase." BLOOMBERG