This article first appeared on Bright Blue's website, as the winner of the 2021 Tamworth Prize, which this year called for entries on how the Government could revive 'left-behind' areas.

When William IV appointed Sir Robert Peel as Prime Minister against the expressed will of the electorate, Peel was forced to prove that his brand of Toryism was in the electorate’s best interests. Boris Johnson finds himself in a very similar position today. Through the electoral benefits of Brexit, the Conservatives have found themselves controlling large swathes of the north – if he’s to stay in Government he must finally take regional inequality seriously – levelling up is the Government’s attempt to do exactly that.

New research into cash benefits has found that the best way to increase someone’s welfare is often to put more money into their pockets. A literature review conducted by the economist Ioana Marinescu found that unconditional cash transfers consistently are found to improve health and educational outcomes, and decrease criminality and drug & alcohol use. Moreover, a recent randomised control trial has found that these schemes can even increase the incentive to work. However, giving people direct payments is not the only way to increase the amount of money in people’s pockets. An easier way is to finally fix council tax.

The way council tax is currently calculated really makes no sense. It is based upon property valuations that are now 30 years old making it extremely regressive. This is because wealthier regions have seen higher levels of house price inflation than less well-off regions. The effect is that those in London pay council tax based on massive undervaluations and those in the north are largely paying based on overvaluations. To make things worse the rates are set locally forcing poorer authorities with higher welfare bills to set higher rates than wealthier ones. Consequently, the effective tax rate in the north east is now 3.5x larger than it is in London. Given this it is no wonder that over 3.5 Million people are currently behind on their council tax bills.

By fixing the council tax system, we can lessen the burden put on the areas that need assistance by putting more cash in hands and increasing their quality of life. The best way to do this is the proportional property tax. This, as advocated by Fairer Share, would put a 0.48% tax on current property values. As well as evening up the divide caused by the out of date valuations we currently use, this move would also be broadly progressive and result in cash savings each year for 76% of households nationwide – the average household saving as much as £453 per annum.

The most important benefits of this policy will be seen in precisely the areas the Government are targeting with their levelling up agenda. Across the 44 Red Wall seats that the Conservatives won in 2019, 97% of households would be better off with the average gaining £660 every year as a result of this change. Furthermore this wouldn’t just be a bribe to Conservative voters. Evidence from the Resolution Foundation indicates that it is the young who would benefit most from this reform – people who are unlikely to vote Conservative.

Thus, the Conservatives should introduce the proportional property tax not just because it would win them votes, but also because it’s the right thing to do.

Moreover, it will also help level up another group that suffers disproportionately under the current system. More than a fifth of young people currently live in overcrowded or concealed housing – and the tax system supports this. Those who live in under crowded conditions with multiple unused bedrooms currently have little incentive to downsize and so that stock is not made available. What PPT would do is incentivise those living in houses larger than they require to sell and purchase somewhere smaller to reduce their tax bill. Inadvertently this decision would increase the supply, and thus lower the cost, of those larger houses allowing more young people to live in homes appropriate for their needs.

It is a standard Conservative principle that the individual knows best when it comes to spending their own money – and modern economic evidence supports this. If we want to level up forgotten regions it cannot be done effectively through central state planning as this will only end up with bureaucracy taking over and inefficiencies ridding the project of its potential to create Adam Smith’s dream of universal opulence.

Like Peel abandoned Wellingtonite traditional Toryism in his Tamworth Manifesto to deliver 98 additional seats, Boris Johnson must too abandon council tax. Given the financial pressures the coronavirus has placed upon families, anything other than abolition would be actively causing harm to the poorest people in the country. PPT is the simplest way of creating a fairer system of property tax and would help put more money in the hands of those who need it most, and relieve the burden of council tax arrears that 5% of Britons are currently experiencing.

Tom is a Law student at City, University of London and is the winner of the Tamworth Prize 2021. 

This article first appeared on Politics.co.uk on November 29th 2021, written by Grahame Morris, Member of Parliament for Easington.

Boris Johnson's social care plan is like a "classic Covent Garden pickpocketing operation", Keir Starmer said last week to much applause from Labour MPs at PMQs and some arresting headlines afterwards.

The image of Johnson and Rishi Sunak as street pickpockets worked well, as it did when Rachel Reeves deployed it in her well-received Budget response last month. It also forms a line of logic that leads Labour into some interesting new territory on how we tax homes fairly.

“It is not just broken promises; it is also about fairness,” said the Labour leader about the revised social care cost cap, which no longer includes council contributions towards total fees. “Under the Prime Minister’s plans, a person with assets worth about £100,000, most of it tied up in their home, would have to pay £80,000. They would lose almost everything.”

Labour is yet to detail our own social care plan, but the direction of travel is clear. Evidently, the leader rejects the concept of all homeowners paying the same towards social care regardless of the value of their property. Those living in areas in the North of England where house prices have hovered around the £100,000 mark for some years should not get the same treatment as millionaires living in London and the South East where prices have sky-rocketed, he suggests.

The position makes sense, coming in the wake of Labour analysis released at the weekend, showing how poorer Northern homeowners will end up losing a larger proportion of their wealth than better-off people under the changes. Homeowners in the North East will be particularly badly affected, with average prices under £186,000 in nearly 90 per cent of constituencies, while those in London and the South East will be less adversely impacted.

"In the so-called red wall, 97 per cent of households would be better off as a result of a proportional property tax"

But if Labour is to level the playing field then why stop at social care? The current council tax system also does exactly what he is railing against by forcing homeowners in modest homes in the North and the Midlands to pay out much more than their southern counterparts as a share of their home’s value every year.

In London and the South East, there are eight constituencies in which the average household pays no more than 0.20 per cent of their home’s value. But in many constituencies in the North and the Midlands, households must pay out a considerably higher share of their home’s value - going up to a whopping 1.41 per cent in my own constituency of Easington in East Durham. As a result, we currently have the absurd situation in which residents in my constituency face a council tax burden 14 times higher than that faced by residents of Kensington – and 24 times higher than people living in Westminster.

If we are to attack the government’s social care cap for hitting those with fewest assets the hardest, Labour should criticise the current council tax regime on the same grounds. Going further, we should be supporting plans to fix the problem without spending more money – by simply abolishing council tax and stamp duty and bringing in a fairer system of proportional property tax.

Under the model proposed by the Fairer Share campaign, property owners would pay 0.48 per cent of their property value each year and this tax would bring in exactly the same amount of revenue as stamp duty and council tax. Around 76 per cent of households across England would gain under the new system, seeing a reduction in the amount of tax they pay on their primary residence.

In the so-called red wall, 97 per cent of households would be better off as a result of the policy with an average saving of £660 per year. We need new ideas to rebuild Britain and Labour backing such a radical and progressive policy would help us beat the Tories at the next election.

Judging by his comments this week, Starmer already supports the principle behind a proportional property tax. The logical next step for him is to get behind a policy that is increasingly and unsurprisingly gaining support from the public as well as from MPs on all sides.

“He has picked the pockets of working people to protect the estates of the wealthiest" Labour’s leader told the Prime Minister at PMQs last week. I agree, and Labour should now apply the same principle and replace outdated council tax with a new, progressive and fairer proportional property tax.

Grahame Morris is Labour MP for Easington 

This article first appeared in The Yorkshire Post on November 24th 2021, written by Andrew Dixon, Chairman and Founder, Fairer Share.

What exactly does the Prime Minister have against homeowners in the North?

For some time households in Yorkshire and beyond have been served up a rotten deal by our outdated and unjust council tax system. And now the Government made matters even worse with a social care cost cap that will hit Northern households hardest.

But as Boris Johnson stands accused of betraying the North, he still has an opportunity to get back in the good books of Northern voters. If he wished to do so, the Prime Minister could deliver serious cash savings to voters across the North just by fixing our broken council tax system ahead of the next general election.

For now, after a week of negative headlines in the North, the pressure is mounting on Ministers to do something that will work quickly and effectively. With the scaling back of the long-trailed Integrated Rail Plan, the Prime Minister found himself at odds with Northern MPs, regional leaders and industry figures, not to mention voters. But the rail plan was only the half of it.

With less fanfare the Government also quietly slipped out details of a new social care cap on home and care costs that will hit Northern households the hardest. The move to amend the cap will save Government hundreds of millions of pounds as subsidised care will not count towards the lifetime maximum.

It is argued that this means people with fewer assets – especially in this region – will end up losing a larger proportion of their wealth than better off people. Essentially, those who live in areas where house prices have not sky-rocketed in recent years stand to lose most.

According to Labour analysis, two thirds of poorer Northern homeowners will pay more towards their care under the changes. Don Valley, where the average property value is £155,000, is one of the constituencies expected to be hit hardest, while homeowners in the North East will be particularly badly affected, with average prices under £186,000 in nearly 90 per cent of constituencies. Meanwhile London and the South East will be less adversely impacted.

"The absurdity of the current council tax system is such that residents of Bradford East face a council tax burden nine times higher than people living in Westminster."

That would be bad enough if households in the North and Midlands were doing well out of other Government policies. Yet the same households are also the biggest losers under our current outdated property tax system based on house price values that are a year older than the very first text message and four years older than DVDs.

Presently, the average household in London presently pays out 0.24 per cent of their home’s value in council tax every year. Meanwhile, the average household in Yorkshire pays out 0.76 per cent and the figure is even higher in the North East. The absurdity of the current council tax system is such that residents of Bradford East face a council tax burden nine times higher than people living in Westminster.

There is no justification for the current unfair system. Especially when there is a straightforward and pain-free solution at hand. Unlike social care, the council tax problem can be easily solved without spending more money – by simply killing off council tax and stamp duty and bringing in a fairer system of proportional property tax.

Under the model proposed by the Fairer Share campaign, property owners would pay 0.48 per cent of their property value each year and this tax would bring in exactly the same amount of revenue as stamp duty and council tax.

A proportional property tax would mean lower bills for 19 million households across England, with households in the Midlands and the North seeing the biggest savings. In Don Valley, 98 per cent of households would see lower bills, with an average annual saving of £550. In Barnsley East, 100 per cent of households would see lower bills, with an average annual saving of £700. Across the ‘red wall’ some 97 per cent of households would pay less.

Unsurprisingly, a proportional property tax has been backed by a number of red wall Conservative MPs. Despite the pressure from his own side and Commons rebellion on Monday night, the PM is still sticking with the status quo when it comes to council tax. But with a cost of living crisis gripping the UK, and a social care cap and council tax system that together look like a double whammy of levelling down, it is surely time for the Prime Minister to change course.

Ultimately, if Johnson is committed to pushing through his rail and social care reforms against the interests of the North, then the least he can do is make property taxes fairer for households from Barnsley to Bishop Auckland.

He should accept that the game is up on council tax and seize the opportunity to move forward with a fairer system, delivering lower bills for millions of people in the North of England. By doing so, the Prime Minister could finally give Northern voters something tangible to celebrate.

Andrew Dixon

Chairman and Founder

Fairer Share

This article first appeared on Politics.co.uk on November 24th 2021, written by Tom Spencer, chief organiser of the London New liberals.

Boris Johnson is facing calls from more than 40 cross-party MPs to table legislation to stop the use of UK property for economic crime and nobody should be surprised. The size of the ecosystem profiting from our housing shortage by investing in prime London real estate cannot be understated and the Prime Minister should act immediately to tackle criminal behaviour lurking within it. But he should not stop there. We also need to fix the property tax system to ensure that all overseas non-resident investors pay up appropriately.

Data from Hamptons indicates that more than half of property purchases in prime London are by overseas investors; and, only 30% of these buyers are actually resident in the capital. From this we can estimate that around 20% of all sales are going to non-resident foreign buyers. This is why as much as one in five properties in the City of London are second homes.

This is particularly concerning given how often these investments are used to facilitate economic crime, with such ease of entry into the market lending itself to money launderers and fraudsters to use property for their personal gain.

Yet even if we ignore the criminality, the London housing market still provides a wonderful opportunity for investors to make money without actually doing anything productive. In real terms since March 1970 the average house has increased in value sixfold, this means investors can purchase a home, barely use it, and sell it on later for massive profits. All while contributing absolutely nothing back to society. And declining interest rates have made it easier for the wealthy to borrow against their existing assets in order to make more and more investments.

This is not a phenomenon that occurs internationally. In New York a 0.71% tax on annualised property values ensures that if one chooses to engage these rent-seeking tactics, then society is suitably compensated. The same occurs in Paris thanks to their wealth taxes on property. In contrast, London does absolutely nothing to stop these practices. Here, a rich Qatari family may buy prime retail estate through a shell company and not even have to pay any stamp duty.

It does not have to be this way. By copying the approach taken in New York we can tax non-resident overseas investors and both create a disincentive from them hoarding property, and if they choose to still invest, then ensure that the public is properly compensated for their rent-seeking.

"Given that around 5% of the value of the housing market is held by foreign non-resident buyers, valued at around £400 billion, a tax of just 1% of property values would raise as much as £4 billion every year."

This could be the first step towards much-needed reform of the entire system. For the past year, political support has been growing for the Fairer Share campaign to replace council tax and stamp duty with a simple tax of 0.48% on property values, with a surcharge rate of 0.96% on overseas non-resident investors.

As well as helping to address London’s problems with overseas investment, this would help to resolve many other challenges. For example, research estimates that anywhere from 170,000 to 600,000 more homes could be built as a result of this policy with the majority of these being in London and the South East.

The benefits won’t be restricted to London. Areas such as Norfolk and Cornwall have seen large increases in second home ownership  which in turn prices out local residents. We know that outright bans simply shift the demand onto the existing stock making the situation worse for homeowners, but a proportional property tax would really help to level the playing field.

Moreover, where council tax under-taxes those in expensive homes, stamp duty penalises people for moving at all. This reform would provide an incentive for those in London’s 600,000 under-utilised homes to downsize, allowing those in overcrowded homes to upgrade more easily. As the cost of living crisis bites. it would also mean lower bills for 76% of households. On average, households would pay £435 less property tax a year under a system of proportional property tax.

The Prime Minister should take the action being asked of him to stop the use of UK property for economic crime. He should also commit to learning lessons from New York and taxing non-resident overseas investors. And if he really wants to deliver more homes, welfare gains and a fairer system across the country, he should commit to fixing property taxes across the board.

Leading LVT Campaigners | Fairer Share's Proportional Property Tax provides pathway to LVT

The UK’s tax system is not fit for purpose. It is complicated and is therefore regularly avoided and evaded. It discourages good investment in economically deprived areas and encourages land speculation which can make available premises too expensive for our future budding entrepreneurs.  

Land owners suck the natural resource wealth from our economy that should be collected to replace unfair taxes such as Council Tax.  An annual Land Value Tax would be the best mechanism to start rectifying this historical wrong whereby big owners of land not only have the advantage of controlling its use but reap the huge economic benefits of holding land – taking land wealth that is created by all of us in society. Support for a more progressive policy on property tax could also be a way to unite the Labour party around a radical vote-winning reform.

The Labour Land Campaign has been campaigning for Land Value Tax since 1983. At this year’s Labour Party conference, we shared a stall with the Fairer Share campaign which is backing a proportional property tax (PPT) which would be a simple flat rate of 0.48% on the value of a property.

The discussions around PPT naturally led on to the question “why include the building in valuing domestic properties for PPT?”  That is a good question because why would we want to penalise owners of good buildings that are attractive with enough, well-proportioned rooms for their families, that use water economically, have good insulation and which enjoy green energy.  

Supporters of an annual Land Value Tax (LVT), whereby all land is valued at its optimum permitted use and an annual levy is charged, argue this very point but many recognise the value of PPT and how its acceptance as a good replacement for Council Tax naturally leads a pathway to supporting an annual LVT not just on residential land but on all land. LVT will bring idle development sites into full use, see empty or underused buildings fully occupied, encourage the beneficial use of land in our towns and cities which will reduce the demand to build on green spaces or greenfield land thus protecting both our countryside and urban green lungs.  Land speculation will become unprofitable and empty flats bought in the expectation that land values will increase, will become much needed homes.

As well as discouraging home improvements another problem with PPT replacing Council Tax is that the Treasury will need to redistribute from Councils with a PPT surplus to Councils with a deficit.

 In the past brilliant new initiatives were piloted by local Government long before they were adopted by Westminster. For example, many councils opened local hospitals and clinics giving free health treatment decades before the NHS was introduced by the 1945 Labour Government. Similarly, town planning, bus passes for pensioners, electricity generation, police forces, cheap fares on public transport with integrated ticketing were all pioneered by progressive local authorities. Even the pilot study for the hugely successful Eden project in Cornwall was funded to the tune of £26k by Restormel Borough Council in the mid-1990s. Whitehall, and especially The Treasury, has never been known for blazing a new trail or taking risks and without an independent local tax base giving councils the ability to respond to local ideas and demands, the UK could lose future creative experiments that ultimately benefit everyone.

We envisage PPT providing a pathway to LVT whereby local authorities collect PPT but in addition (and maybe at a later date) the national government could introduce LVT on all land throughout the country.  The economic merits for taxing land rents have been acknowledged by most thoughtful economists from Adam Smith to many Nobel prize winners such as William Vickrey and Joseph Stiglitz. Unlike taxes on wages or production LVT does not distort the economy and any effects it has on individual behaviour is entirely beneficial as using all land and natural resources more efficiently not only recognises their scarcity but also creates useful employment and protects green spaces. An Annual Land Value Tax is not only the best wealth tax (you can’t hide land like a valuable painting or cash) but it is unique as taxes go as LVT is actually a wealth creating tax.

Where there are examples of residential owners genuinely not being able to afford an increase in their PPT or LVT bill over what they currently pay under Council Tax, the unaffordable bill can be “rolled-over” to be paid when the home changes ownership.  Local Authorities can still borrow against this anticipated future income as happened with Transport for London’s Supplementary Business Rate levied on just a few commercial properties to part-fund the building of the Elizabeth line.

Organisations that support an annual LVT vary in their make-up and include a broad spectrum of political groups, environmental campaigns, those arguing for fair taxes, business representatives, housing campaigns and so on, they argue LVT is not a “left-right” issue but it is a “right-wrong” issue.

By working together, the success of Fairer Share’s Proportional Property Tax should lead its supporters to understand the relevance of land wealth in the economy and support the arguments for an annual Land Value Tax to replace current property taxes and other distortive taxes that discourage good behaviour and reward bad behaviour.

Dave Wetzel, Vice Chair, Coalition for Economic Justice (www.c4ej.com) and Heather Wetzel, Vice Chair, Labour Land Campaign (www.labourland.org


The Government is running out of excuses for sticking with the status quo.

Government response to the HCLG Select Committee report on local authority financial sustainability and the section 114 regime - a response from Fairer Share

The Government is missing a clear-cut opportunity to level up by refusing to consider the Housing, Communities and Local Government Select Committee’s suggestion that it should consider options for wider reform of council tax, including a proportional property tax. What’s more, the Government’s explanation for why it is sticking with the status quo does not stand up to scrutiny.

1. The Government states: “Council tax provides stable income for local authorities to deliver a range of vital local services, and predictable bills for taxpayers."

With upwards pressures on spending forcing councils to raise ever more revenue through council tax, it is surely debatable as to whether the levy provides stable income for local authorities. Also, there is no reason why council tax would provide local authorities with more stable income than would be the case with a proportional property tax. To ensure stable and balanced revenues, we propose that in areas where proportional property tax revenue is higher than that raised by council tax, the extra will be used by central government to compensate councils which raise less in proportional property tax than they do in council tax. 

As for the claim that council tax provides predictable bills for taxpayers, the only predictable thing about many council tax bills is the unfairness that is baked into them. Based on property values that are thirty years out of date, council tax ensures that households in low-value homes must pay out a far higher share of their property’s value in tax every year than those in more expensive homes. It also hits renters saving up for a deposit just as hard as those who have made it onto the property ladder.

2. The Government states: “A revaluation would be expensive to undertake and could result in increases to bills for many households.”

At some point the Government will have to undertake revaluation. Using 1991 house values will just entrench and worsen existing inequalities and seem ever more outdated and ridiculous. Letting this problem slip into the future is short-termist and will be harmful to the Government and the Conservative Party’s manifesto commitment to level up.

We commissioned the well-respected International Property Tax Institute (IPTI) to write a 200-page deep dive into the issue of valuation. Other jurisdictions manage to provide accurate valuations of the capital values of their properties – Netherlands, New Zealand, British Ontario, New York. For a country that prides itself on data analytics and AI your concerns around valuation are insufficient. 

In IPTI’s view, the introduction of PPT poses no insurmountable technical or valuation issues. As we have already stated, much of the rest of the world operate similar systems and they have proved reliable and sustainable.

There are implementation costs to be considered but, in comparison with the potential revenue to be derived from PPT, they would appear to provide good value for money in terms of cost/yield ratio. The Government already collects the requisite data at the VOA. To undertake a PPT it is a case of using the data correctly.

One thing that we do know about households bills that would result from the system we propose it that most would go down. Around 19 million households in England (76%) would gain under a proportional property tax, seeing a reduction in the amount of tax they pay on their primary residence.

3. The Government states: “The creation of higher council tax bands, which in itself would require a revaluation, may penalise people on fixed incomes, including pensioners, who could face a substantial tax rise without having the income to pay the higher bill.”

While a minority of people in valuable homes would see their bills go up after a revaluation, the Fairer Share system has built in safeguards to ensure that there are no losers on day one of a proportional property tax being implemented. For those staying in a high value home and paying the new tax, losses would be capped so that, at the point of transition, no household sees an increase of more than £100 per month on what they currently pay. But to ensure there do not have to be any losers on day one, there would be a deferral mechanism until point of sale on a low interest rate, so that nobody has to pay out immediately if they cannot afford to do so.

It is true that some asset rich, cash poor homeowners in valuable properties would see their bills go up under a system of proportional property tax. But many more people would see their bills go down and the alternative is sticking with a system which penalises renters and hard-pressed families in lower value housing.

4. The Government states: “Given that council tax is retained locally, a revaluation would not address the disparity between strength of council tax base and need.”

Again, this is misleading. Following a revaluation, under the Fairer Share model councillors would be able to set their own rate within a nationally-agreed range, maintaining vital local democratic connections (see more here). This would leave councils in a stronger position than now. Currently, councils can increase council tax a certain amount set by government, with central funds making up a large proportion of council budgets. With a proportional property tax, councils will still have flexibility within a nationally-agreed range and central redistribution will continue to make up a large slice of budgets. 

The real difference with the new tax is that it will put cash in the pockets of the local people who are struggling the most, boosting local businesses and allowing councils to deliver better services.

 

What is perhaps most telling is that the Government’s 234-word defence of the current system does not mention the word fairness once. But perhaps we should not be surprised when we have such an outdated and unjust system. Nevertheless, the Government’s position is completely at odds with the its stated desire to level up the country. As council tax continues to rise, hitting hardest on renters and homeowners in lower value properties, we can clearly see that it has the effect of levelling down rather up. 

It is evident from the Government’s response to the HCLG Select Committee that excuses for sticking with the status quo are running out. As the “cost of living” crisis hits households up and down the country, now is the time for ministers to take action where they can. That must mean killing off council tax and stamp duty and bringing in a system of proportional property tax that we know would bring about lower bills for most households. 


Tom Spencer | Who wins gains? How capturing land value can revolutionise our infrastructure

This article first appeared in CapX on October 19th 2021, written by Tom Spencer, chief organiser of the London New liberals.

With the Government’s much-vaunted commitment to ‘Levelling Up’, public investment in infrastructure is all the rage. But who really reaps the reward when the state doles out taxpayers’ cash on improving our roads, railways and so on?

The simplest answer is that the benefits accrue to taxpayers themselves, both in terms of faster and more convenient travel and, in a broader sense, from a more productive economy. But on an individual level those gains are trifling compared to the gold-rush that new infrastructure can bring property owners in the vicinity of, say, a new train line.

With the Government’s much-vaunted commitment to ‘Levelling Up’, public investment in infrastructure is all the rage. But who really reaps the reward when the state doles out taxpayers’ cash on improving our roads, railways and so on?

The simplest answer is that the benefits accrue to taxpayers themselves, both in terms of faster and more convenient travel and, in a broader sense, from a more productive economy. But on an individual level those gains are trifling compared to the gold-rush that new infrastructure can bring property owners in the vicinity of, say, a new train line.

The basic idea is that government can offset the cost of construction against future revenues from business rates paid by firms operating in the area that benefits from new infrastructure. As Browne notes, TIF is particularly attractive because it doesn’t require any tax increases or funding from existing taxpayers.

From TIF to PPT

That still leaves us with the issue of capturing the surge in the value of residential properties, especially in London and the south-east, where homeowners have benefited from huge investments in projects such as Eurotunnel and Heathrow Terminal 5.

Given these unearned and largely untaxed gains it does not seem particularly fair that property owners pay a lower tax rate than other parts of the country which have not benefited from the same level of public investment. And, of course, the higher property prices in London and the south-east have made ownership much more challenging for younger generations and low income workers.

So how could we go about taxing that uplift in a sensible way?

The existing council tax system certainly isn’t fit for purpose, not least as it is based upon valuations conducted 30 years ago. As a result we now have a situation where residents in areas with high house price growth tend to be undertaxed. Absurdly, the wealthiest homeowners in Westminster, for example, have ended up paying less tax than the least wealthy homeowners in Hartlepool.

A better idea, advocated by campaign group Fairer Share, is to scrap Stamp Duty altogether and replace council tax with a Proportional Property Tax (PPT) of 0.48% tax on annualised property values. This means that when a new tube line is built next door to a house, and the value subsequently doubles, the owner’s tax bill will increase to reflect that.

Given that such a change would hurt the ‘asset-rich, cash-poor’ – such as pensioners with expensive homes but only a modest income –Fairer Share have suggested that tax increases should be capped at £1,200 a year. Those unable to afford that increase would have the option to defer the bill until the point of sale. Even so, the vast majority of people won’t need these protective measures and 76% of households would see an immediate reduction in their tax bills.

Taken together, Tax Increment Financing and a Proportional Property Tax offer innovative, fair and efficient ways of capturing the gains from new construction. With the Prime Minister faced with the twin challenges of levelling up and balancing the books, he could do a lot worse than giving both a try.


Numerous leading economists and property experts have displayed their support for reforming the UK's property taxes, replacing Council Tax and Stamp Duty with our Proportional Property Tax.

Carol Lewis | Deputy property editor, The Times and Sunday Times

From its early stages, Carol has covered our campaign in The Times and Sunday Times. She also featured on a panel with our founder, Andrew Dixon, at the Conservative Party Conference in 2021 - here is her review, including the need to reform Council Tax with a Proportional Property Tax:

Property news from the 2021 Conservative Party conference

Martin Wolf | Chief economics commentator at the Financial Times

Martin Wolf's support for property tax reform pre-dates our campaign as he has been writing about the scourge of Council Tax for a number of years. In one of his more recent contributions to the debate, he said: " The Fairer Share manifesto provides a compelling attack on council tax. It should be reformed."

Now is the time to reform the UK’s dysfunctional tax system

Russell Lynch | Economics Editor, Daily Telegraph

Russell Lynch wrote during the height of last year's Stamp Duty holiday: "Stamp duty can’t be considered in isolation. A proper approach would see a comprehensive review of all property taxes. Top of the list would be replacing the manifest unfairness of a council tax based on 1991 property valuations."

Stamp Duty should be scrapped and the whole property system reformed

Sir James Mirrlees | British Economist and winner of 1996 Nobel Memorial Prize in Economic Sciences.

In 2010, the Institute for Fiscal Studies wanted to undertake a review of the UK's tax system. The panel was chaired by Nobel Memorial Prize winner, Sir James Mirrlees. The Mirrlees review said that Council Tax was "regressive without good reason" and that Stamp Duty is "inefficient and badly designed tax on transactions."

Read a summary of the Mirrlees Review

Mirrlees Review of tax system recommends radical changes

Paul Cheshire | Emeritus Professor of Economic Geography, LSE and Christian Hilber | Professor of Economic Geography, LSE

As part of Bright Blue's cross-party Tax Commission, Professors Cheshire and Hilber led a report seeking to identify the best system for property tax reform. On the release of the report, Professor Cheshire said: “With these reforms, we have aimed to strike a balance between what is economically efficient yet also politically feasible. Moving to an APPT fulfils both of these criteria, as well as having a role to play in addressing regional inequalities. These reforms will result in a system of property taxation that is fairer, greener, helps deliver more new homes and is simpler and more transparent than the one we have now.”

 Home truths: options for reforming residential property taxes in England

Fairer Foundations | Support for PPT at Conservative conference fringe event

A Conservative MP, a peer, a campaigner for affordable housing and a senior property journalist on The Times all spoke in favour of a proportional property tax at a Conservative party conference fringe event hosted by leading centre right think tank, Bright Blue.

Alongside Andrew Dixon, founder, and chair of Fairer Share, on the panel for the event were Aaron Bell, Conservative MP for Newcastle-under-Lyme; Lord Willetts, President of the Resolution Foundation; Anya Martin, Director of Priced Out; and Carol Lewis, Deputy Property Editor at the Times and The Sunday Times. 

The discussion covered the unfairness of the present system, how the introduction of proportional property tax would be consistent with Conservative party values, why it would also make electoral sense for the party to support PPT and why successive governments have shied away from much-needed property tax reform. 

The consensus was that the time has come for action on our unfair property taxes. Or as Aaron put it: “If not now, when?” 

Current challenges

Bright Blue’s Phoebe Arslanagić-Wakefield, summarised the current challenges, “There is now a consensus that Council Tax is poorly designed. The valuation has not been updated since the '90s. And that's despite the astronomical boom and house prices we've seen since then, especially in the South. That has led to serious regional imbalances in terms of the burden that Council Tax presents to taxpayers, surely an important question for the Conservatives in terms of levelling up. Many economists argue that Stamp Duty impedes and distorts housing prices, making it more difficult for homeowners to decide to downsize or indeed move up the housing ladder and slowing down the market.”

Fairness

There was widespread agreement that the present system is not working and that a proportional property tax is a much fairer solution.

Aaron gave the example of households owning a £100,000 property in his constituency. “There are plenty of £100,000 properties in Newcastle-under-Lyme. They pay five times more (in Council Tax) as a proportion of property value than someone who owns a million-pound house down in London. So, there is a real unfairness there,” he said.

Anya described the current system of property taxation as “totally backwards”. She noted that Stamp Duty discourages and disincentivizes housing transactions and that Council Tax is equally bad. 

She said: “It's unfair you can tax properties worth millions of pounds at a higher rate even than small family homes in Sunderland or wherever. These two taxes jointly make moving very expensive and staying very cheap, even if you're occupying more space than you actually need or even want in very high-demand areas. 

“So, it's bad for people who want to move, it's bad for the distribution of homes, it's bad for under occupation and overcrowding, and it's bad for the supply of homes as well, because it incentivizes people to have second homes or even leave homes empty when actually you could incentivize them to do otherwise, which is why we support Fairer Share.”

Similarly, Carol stated: “I am in favour (of the Proportional Property Tax) because I think it's a lot, lot fairer than what we've got…I think what we want is we want more people to be able to own property so that they can bequeath it to their children, and that's ultimately what we're trying to achieve here. Rather than have the huge divide between those who have and can inherit and those who can't and won't.”

Tory values

Lord Willets also explained to delegates how the introduction of proportional property tax would be consistent with Conservative party values. 

He said: “Property-owning democracy is one of the great Tory slogans. And when I was working for Margaret Thatcher in the 1980s, we had council house sales, and ownership of property and ownership of shares spread. 

“I think one of the long-term challenges facing our party is the retreat of property ownership so that younger people are less likely to own a property. This is very dangerous for the long-term future of conservatism. We've got to help young people get started on the housing ladder, and this tax would bring more houses onto the market and would mean that people in low-value houses will not be paying so much tax.”

In a similar vein, Aaron added, “If we don't start trying to work out how we can treat the younger generation more fairly in these matters, then they're not going to grow up to be Conservatives.”

Anya reminded the audience that “young people are very, very angry about their housing circumstances.”

Vote winner

Carol summarised the audience of the key benefits, “75% of households would be better off. £6.5 billion per year being saved by Council Taxpayers outside London. Up to 600,000 homes would be released into the market over the course of the next five years. And we would see a £3.27 billion per year increase in GDP from the increased housing market.”

As well as being consistent with Tory values, Aaron argued that it made electoral sense for the party to support the Proportional Property Tax.

He said: “I don't see any reason why the Conservative Party couldn't do this and especially when they have a very large majority, and actually, I think this is a policy that does attract widespread support from anyone who listens and thinks about it. 

“We've got here is a load of MPs who can make a lot of noise on behalf of the winners, because we've suddenly got a lot of MPs, who will be represented constituencies where 99% of people are winners, and that'll put more money in their pockets and more money into our local economies.”

He added: “If we don't look at this and the Labour Party gets there first, how are we going to argue against that? And how much damage is that going to do in all the seats that we've won? We've got to hold on to seats like mine if we're going to have a majority next time.”

Fear factor

Lord Willets set out a key reason why the current system has remined in place, despite its clear shortcomings. 

“Council Tax goes back to one of the biggest traumas in the history of the post-war Conservative Party,” he said. “There are people around, you can watch their faces turn pale when you talk about Council Tax… There's a kind of almost irrational fear now of doing anything about this because it was also painful in the 1980s.”

“I think there are quite a few people in the Treasury who would like just to get some rather better capital taxes than we have now. So, I think it is now an issue that can be approached, provided we realize there are people out there with post-traumatic stress syndrome who will need massive calming down through the process.”

On the same theme, Aaron suggested ministers lack the courage to take action.

Now is the time

Carol said the time had come for ministers to take action on property taxes. “I think 30 years without addressing it - it's time to do it. Now is the time. We can't wait another 20, 30 years. I think the Conservatives are going to have to do it,” she said.

Lord Willetts gave a compelling reason why the time has come to reform property taxes. He said: “The total wealth we had, our houses, and our pensions used to be three times our national income. They now reach seven times our national income.” He added that this means that “if you are looking around for taxes that you need to raise, it is striking how the proportion of GDP taken in taxes on property in the broadest sense has not gone up at all. This policy is in the political interests of the Conservative Party. It makes both economic and political sense.”

Anya captured the mood, “We need to abolish Stamp Duty. We need to reform Council Tax, replacing them with the Proportional Property Tax. It’s a really fantastic policy.”

Aaron also pointed rising property values as a key reason for reform. “The fact is that no government had the courage to revalue council tax ever since 1990, in which time property values have soared in the south east… There's a real unfairness issue that I think is long overdue for addressing,” he said.

He also said his party should act now if they are to help voters in the red wall seats that the party won in the last election.

“If not, now, when? We've got representation in seats we've never represented before. We're representing lots of people who live in £50,000 houses, £30,000 houses, who are being essentially screwed over by the system. And it's time we did something about that.”

 

You can watch the event in full below:


Property tax would bridge the wealth gap between ages | Lord Willetts

A shorter version of this article appeared in The Times on October 4th 2021, written by Lord Willetts, President of the Resolution Foundation.

 

It is more than ten years since I published The Pinch, setting out how huge intergenerational injustices were opening up across Britain. Or to use the more provocative wording on the cover, how baby boomers took their children's future - and why they should give it back.

Since then others have produced important works about the difference between the generations in the UK. The latest is Generations by Bobby Duffy. He argues that there are not wider cultural gaps between parents and their children. I am sure he is right on that – the big shift towards more liberal attitudes occurred with the Boomers in the 1960s and since then the generational gap has been much smaller . Indeed there is something in the Ab Fab meme– young people are so much more serious-minded than we Boomers were when we were young.

None of this however changes the reality of  a big and growing economic gap between the generations.  For example Bobby  Duffy cites Resolution Foundation evidence that Millennials are around half as likely to be homeowners than generations born only a couple of decades earlier.

Intergenerational fairness has risen up the agenda in recent years, but it has been harder to take the action needed to bridge the divide. We hear a lot, rightly, about levelling up the regions of the UK but far less about levelling up the generations.

The proposals on social care did make some modest steps in the right direction. At one point it looked as if the measures would be funded simply by increases in conventional national insurance which really would have been a direct generational transfer. But then the Government decided the levy will also be paid by working pensioners who do not pay employee national insurance. And the levy is to be applied to dividend income so at least there  is to be a contribution from owners of assets who are disproportionately old.  

There is however one big issue which is getting worse and at some point is going to have to be addressed – Council Tax. It  is based on property valuations from 30 years ago and is deeply regressive.  Lower value properties pay much more proportionately than high value properties. The system is particularly hard on young people, who are renters and dreaming  of owning a home of their own but still pay the tax. 

There is a way to fix the council tax problem. Support is growing for replacing council tax and stamp duty with a proportional property tax. Previous research has shown that a Proportional Property Tax set at about 0.5 % of a property’s value would deliver lower bills for three quarters of households, while reducing them to zero for renters.

Now, new research from the Fairer Share campaign shows it would also pave the way for the release of many thousands of extra homes for young people and families who need them. In the most optimistic scenario, almost 600,000 homes would be released within five years of such a tax being introduced to replace the other two taxes. Of these it is estimated that around a quarter of a million would be one and two bed homes suitable for first-time buyers. A similar number would be three bed homes for young families to move into.

If the generation gap is not to widen further in the years ahead then politicians cannot afford to ignore these kinds of policies. We need a massive boost to home ownership. When I updated The Pinch in 2019, I said that political parties should use the upcoming election to start healing these divides with a policy programme that appeals to and benefits young and old alike. 

At next week’s Conservative party conference, we will hear more about how the Government’s levelling up agenda will attempt to close Britain’s deep-rooted prosperity gaps. The challenge is ensuring that the levelling up agenda also goes some way to closing the widening generational gap in the UK. A reform of council tax contributes to both sorts of levelling up. It eases the burden of tax in areas with more low value properties and it also eases the burden on young people especially renters. Of course there is tricky politics as some people have to pay more. But they are outweighed by the numbers who pay less. And we end up with a system which helps the very groups Tories know we have to win over. 

 

David Willetts is President of the Resolution Foundation. A second edition of his book The Pinch was published in 2019.