Council Tax is clearly broken. It is based on property valuations from 1991, bears little relationship to people’s ability to pay, and leaves many households in modest homes paying a higher effective tax rate than those living in properties worth millions. Meanwhile, councils face growing pressures on social care, housing and local services.
Given those problems, it is easy to see why some argue that local government should instead be funded through a local income tax. Income is often viewed as a fairer measure of ability to pay than property ownership, and a local income tax would undoubtedly be more progressive than the current Council Tax system.
But while the diagnosis is correct, the prescription is wrong.
The real problem is not that income is undertaxed. It is that property wealth is taxed badly.
Income Is Already Heavily Taxed
Before creating a new local income tax, we should recognise that income is already one of the most heavily taxed parts of the British economy.
Workers pay Income Tax and National Insurance. They then pay VAT on much of what they spend from their post-tax earnings. For many households, a substantial proportion of every additional pound earned is already taken in tax.
Property is different. Council Tax bears little relation to the actual value of homes, particularly at the top end of the market. As a result, many owners of high-value properties pay remarkably low effective rates compared to those in more modest homes.
If the goal is a fairer tax system, it makes more sense to reform the undertaxed base than to add another layer of taxation to one that is already heavily taxed.
Tax Wealth More Fairly, Not Work More Heavily
A local income tax would leave many of the biggest distortions in the housing market untouched.
Someone living in a £2 million house could pay relatively little local tax if their current income is modest. Meanwhile, a teacher, nurse or small business owner in an average home could face a significantly larger tax bill because they happen to be earning a decent salary.
That shifts the burden further onto work while doing little to address the unequal taxation of housing wealth.
There is also an important intergenerational dimension.
Younger working households already bear much of the tax burden through Income Tax and National Insurance, often while facing high housing costs and struggling to get onto the property ladder. Many have seen little benefit from the decades of house price growth that transformed the wealth of existing homeowners.
By contrast, many older households have benefited from years of falling interest rates and substantial increases in property values. Under a local income tax, a retired couple living in a high-value home could pay relatively little local tax if their taxable income is modest, despite sitting on significant housing wealth.
That would risk shifting more of the burden onto younger workers while leaving some of the largest concentrations of wealth largely untouched.
A proportional property tax is fairer because it recognises that housing wealth, not just annual income, reflects a household’s ability to contribute. It therefore spreads the burden more evenly across generations rather than concentrating it on those currently in work.
Fairer Share’s proposal to replace Council Tax and Stamp Duty with a Proportional Property Tax (PPT) takes a different approach. It links tax directly to the value of a property, ensuring that owners of the most valuable homes contribute proportionately more while many households in modest properties pay less.
Better for Local Government
Property is also a stronger basis for local taxation.
Unlike income, property cannot move. Property values are shaped by local services, infrastructure, schools, transport links and planning decisions. When councils help create thriving communities, rising property values reflect that success.
A proportional property tax therefore creates a stronger connection between local public investment and local tax revenues.
It is also a more stable source of funding. Income tax revenues can fall sharply during economic downturns as employment and earnings weaken. Property taxes tend to be more predictable, giving councils greater certainty when planning services and investment.
Don’t Forget Stamp Duty
The biggest advantage of the Fairer Share proposal is that it reforms both Council Tax and Stamp Duty together.
Stamp Duty is one of the most economically damaging taxes in Britain. It discourages people from moving, traps older households in homes that are too large, makes it harder for families to find suitable housing, and reduces labour mobility.
Abolishing Stamp Duty would make the housing market work better for everyone.
Many low- and middle-income households would benefit not only from lower annual property taxes, but also from being able to move home without facing a large tax bill.
A local income tax offers none of these benefits.
The Better Reform
Those who support a local income tax are right about one thing: the current system is broken.
But replacing Council Tax with a new tax on earnings would mean asking working people to carry even more of the burden through their pay packets, despite income already being heavily taxed. It would also risk shifting the balance further against younger generations who earn their income through work while leaving substantial housing wealth comparatively lightly taxed.
A better solution is to reform the taxation of property itself.
Replacing Council Tax and Stamp Duty with a Proportional Property Tax would create a fairer system, provide a more stable funding base for local government, reduce barriers to moving home, and cut bills for many low- and middle-income households.
If the choice is between taxing work more heavily and taxing property wealth more fairly, Labour should choose the latter.
Join the growing momentum for change and sign the petition calling for a full and independent review of property tax.