Campaigners from across the political divide unite to call for overhaul of residential property taxes
Below is an open letter to the Chancellor of the Exchequer published on 14th March 2021, featuring in The Observer.
Dear Chancellor,
We are writing to ask you to consider announcing a root and branch review into the way residential property is taxed in the UK.
As the Government begins to plot its way out of the coronavirus pandemic, which has accentuated the inequalities in our society, fairness should be at the heart of the Government’s policy agenda. This must mean looking at the options for reforming our residential property taxes so that they are based on today’s property values and homeowners’ ability to pay, while encouraging efficient use of our housing stock and generating incentives for local communities to accommodate development.
Any such review should begin by focusing on Council Tax, which is poorly designed, out of date, and unpopular. This tax is based, in England and Scotland, on property valuations that are now almost 30 years old and therefore bear no resemblance to the realities of current house prices.
It would appear that Council Tax is a material wealth tax for those in modest houses but is a modest service charge for those in wealthier areas. This places the heaviest burden on the young, low-earners, and those living in less prosperous parts of the country, who typically reside in modest properties.
We have known for many years that Council Tax is not fit for purpose but the situation is now critical. Council Tax is increasingly putting lower-income families into debt and Covid-19 has only exacerbated the situation, with an extra £700 million added in outstanding Council Tax debt from over 800,000 UK households between March and September alone.
A review of property taxes should also consider whether there is a place for Stamp Duty in a modern system of property taxation. By taxing property transactions, Stamp Duty discourages homeowners from moving and blocks up the property market, hindering older people from downsizing and limiting young families’ ability to move up the property ladder. This has wider dynamic economic implications as we have seen from the Stamp Duty holiday.
Households are already paying comparable property taxes relative to other developed nations – the problem is that the wrong households are paying the wrong taxes at the wrong times. The current unfairness exists within individual constituencies, between regions, and between the generations.
We urge you to use the so-called “Tax Day” on 23 March, when the Treasury will publish a range of consultations and calls for evidence into tax policy, to begin this review process. We are ready and willing to support the Government with its efforts to introduce a fairer and more efficient system of property taxation that is fit for the modern age. We recommend the Government examines this issue through the lens of fairness, economic activity, social mobility, housing stock efficiency, the Government’s levelling up agenda and the impact of the pandemic on household and local government finances.
We look forward to your response and to the upcoming consultation announcements.
Kind regards,
Alicia Kennedy, Director, Generation Rent
Andrew Dixon, Chairman, Fairer Share
Anya Martin, Director, Priced Out
Ben Rich, CEO, Radix
Carys Roberts, Executive Director, IPPR
Charlotte Alldritt, Director, Centre for Progressive Policy
Dr Gavin Kerr, author of “The Property-Owning Democracy: Freedom & Capitalism in the 21st Century”
Dr Justin Thacker, Director, Church Action for Tax Justice
James Kirkup, Director, Social Markets Foundation
John Muellbauer, Institute for New Economic Thinking, Oxford Martin School
John Myers, Founder, London YIMBY
Liz Emerson, Co-founder, Intergenerational Foundation
Neal Lawson, Director, Compass
Polly Mackenzie, Chief Executive, Demos
Professor Philip Booth, Director of the Vinson Centre for the Public Understanding of Economics and Entrepreneurship, University of Buckingham
Robert Colvile, Director, Centre for Policy Studies
Robert Palmer, Executive Director, Tax Justice UK
Robin McAlpine, Director, Common Weal
Ryan Shorthouse, Chief Executive, Bright Blue
Sam Dumitriu, Research Director, The Entrepreneurs Network
Torrin Wilkins, Director, Centre Think Tank
Our Response to MP Neil O’Brien’s Review of PPT
We have appreciated the support and encouragement of leading think tanks and academics. We have been excited by our engagement and interaction with leading MPs from across the political spectrum.
Feedback has been extremely positive. And we welcome this review of our policy undertaken by Neil O’Brien, the MP for Harborough, Oadby and Wigston.
We feel it is only fair to him and also to our many supporters, who will want to make sure they are backing the right horse, that we examine Mr O’Brien’s concerns in detail. We have responded in a Q&A format below:
Neil O’Brien MP
I read the proposal with interest and it raises important points about fairness in our tax system. However, as I understand it, evidence about how the proportional property tax would work in England shows that a lot of places that are low-income areas but also experiencing rising house prices would be hit very hard, even places with high levels of deprivation and low household incomes. If house prices were to rise in an area, low-income households would quickly see their bills rise at staggering rates well above increases to their income.
Fairer Share
Should a similar argument also apply to Council Tax?
Not only is Council Tax out of date, it also taxes tenants – those who don’t even own the property – rather than owners, hitting the asset-poor and income-poor. Given rising levels of Council Tax debt, it clearly does not take into account ‘the ability to pay’, a problem worsened by recent Council Tax increases that have exceeded current levels of inflation.
With our proportional property tax, those living in houses valued at £500,000 or less (90% of all households in England) are likely to see a reduction in their tax bills because the future tax will be less than their current Council Tax payments. Therefore, low-income households are more likely to benefit from a very real reduction in their bills.
In the rare situation of low-income households living in high value homes the increase in tax would be capped, so that at the point of transition, no household would see a rise of more than £100 per month (£3.29 per day). And we would provide these households with the option to roll over the tax payment, at a modest interest rate, until point of sale or change of ownership.
Indeed, this would go a long way to alleviating the challenges faced by the rural poor. One of the issues for the rural poor is poor cash flow, the ability to roll over a tax burden into a highly-priced asset would improve their liquidity and reduce their Council Tax burden.
And to be clear, any debts built up as a result of deferring a payment would be considerably lower than wealth gained from rising house prices. Assuming 4.8% annual house price inflation, housing assets would increase at 10 times the speed of any tax liability. House prices would have to increase at less than 0.48% per year for the tax debt to exceed the value of the housing asset.
Therefore, those living in a modest home will see a reduction in their tax bill. Those owning a larger property can either choose to pay the additional charge, which even for the largest and most valuable homes would be capped at a £1,200 increase per year or they can choose to defer payment until they sell the property.
Within Mr O’Brien’s constituency of Harborough, for example, someone living in a modest band A property pays 0.90%, whereas someone in a higher band H property pays just 0.22% of the property value. In other words, it would appear that Council Tax is a wealth tax that perversely places the greatest burden on those with the least wealth in the first place. We have been inundated with stories from supporters who are struggling to find the money to pay their Council Tax bills.
We all want to live in a fair society, and paying the same rate of 0.48% of the property value is surely better than the current system, where someone in Barnsley pays 1% and someone in Battersea pays 0.1%.
Mr O’Brien is right to point out the hardship of low-income households but Council Tax has become a wealth tax for modest and low-income households and remains a simple service charge for the wealthy.
Neil O’Brien MP
Another issue to consider is that excessive council tax increases are kept in check by referendum principles, which could not be done under the proposed property tax system. If house prices begin to rise in an area, low-income households would quickly see their tax bills rise at staggering rates well above increases to their income.
Fairer Share
It is for this reason we have a fixed national component which would go to central government for redistribution and an initial floating local component which would go to the local authority and could subsequently be moved up or down by that authority. In this way local authorities retain flexibility over taxation and voters can still judge them on value for money. As happens now, there could be limits on how this flexibility to set local rates is used, including the requirement to hold a local referendum if it is proposed that the local share of the tax was to be raised above a certain limit. The Local Government Chronicle covered these important issues in this review.
Neil O’Brien MP
Even if the new proportional tax was to be paid by property owners rather than tenants, it is highly likely that this would simply be passed on back to tenants in rent increases, as property owners still need to make mortgage payments.
Fairer Share
Yes, property owners are very likely to pass some or all of the tax down to the tenant through higher rent.
Keep in mind 75% of properties will see a reduction in Council Tax. Therefore, it is likely that the landlord will pay less property tax than the tenant is currently paying in Council Tax. As a result, the tenant will receive a net gain as future rent (incorporating the proportional property tax) will still be less than the current rent plus Council Tax.
Households are already paying sufficient property taxes – the problem is that the wrong households are paying the wrong taxes at the wrong times. The current inequity exists within individual constituencies, between regions, and between the generations.
Neil O’Brien MP
On second homes and vacant homes, 95 per cent of second homes are already charged full council tax and vacant homes can be charged double the council tax rate if these are empty for two or more years. Council tax is a valuable source of revenue for local councils and it is important that they have the discretion to raise or lower council tax rates based on the needs in their local area.
Fairer Share
Yes, it is for this reason we have a surcharge rate of 0.96% for second and vacant homes, and for foreign buyers.
Under a proportional property tax – as historically has happened within local government finance – some councils will receive additional funding from other parts of the local government finance system. The size of this additional funding would be based upon an assessment of the difference between a council’s resources (its tax base) and spending needs. As the Institute for Fiscal Studies note, if local tax bases change in size when reforming local taxation and resource equalisation is still a desirable aim of policy then it would require funding levels to adjust, “…increasing them for those [local authorities] whose tax base falls, and reducing them for those whose tax base rises.”
While the exact approach to this adjustment would depend on the context of local government finance at the time, an underlying principle would be to take account of the relative size of a council’s proportional property tax base, and not the revenue that a council intends to generate from that tax base. What this should mean in practice is that two local authorities with similar tax bases and a similar assessment of relative need would receive broadly similar baseline funding levels, irrespective of their local proportional property tax rates.
In conclusion, there is a growing political consensus that both Council Tax and Stamp Duty need to be reformed. As we begin to look beyond Covid-19 and deal with the inequalities that the pandemic has accentuated, we should seize the opportunity to scrap both of these taxes and bring in a fair and workable system of property taxation.
In his recent op-ed piece in the Daily Telegraph, Mr O’Brien’s colleague, Aaron Bell, who took Newcastle-under-Lyme from Labour for the Tories at the 2019 election, said: ‘…abolishing Council Tax and Stamp Duty and replacing them with a fairer property tax is the right thing to do for millions of people up and down the country. It is also the right thing for the Conservative Party to do if we are serious about delivering to those who voted Tory for the first time in a generation.’
We are indeed grateful to Mr O’Brien for taking the time to analyse our Proportional Property Tax recommendations. As we can see from our Constituency Data, under a proportional property tax, 88% of all the households in Mr O’Brien’s constituency would benefit from an average annual saving of £400. Furthermore, 95% of households living in bands A-D would be better off.
We encourage Mr O’Brien to take another look at our proposals and we welcome further input.
Moving to a Proportional Property Tax: Implications for Local Government Finance
Addressing the impacts on council revenues, resources and residents
Summary
The Fairer Share campaign proposes replacing the regressive Council Tax and unpopular Stamp Duty with the Proportional Property Tax (PPT).
Many of our supporters have asked us the following important questions on local government finances:
- How would PPT revenue be managed between local and central government?
- What impact does the PPT have on council finances?
- What impact does PPT have on council residents?
Each of these topics are discussed in turn, below:
Managing PPT revenue between local and central government
Currently, Council Tax revenue goes to councils. Stamp Duty revenue goes to central government.
The move to PPT would create a new source of revenue.
There are three arguments in favour of councils receiving a direct share of the PPT revenue raised in their area. It would mean that:
- voters could hold local councillors to account for local tax and spend decisions;
- councils do not give-up revenue-raising power to national politicians; and,
- councils have incentives to pursue local growth so as to increase local tax revenues.
Significantly, with revenue based upon annually updated house prices, councils would retain a share of the uplift in house prices that their policies create.
The key argument in favour of central government receiving a direct share of PPT revenue from every council area is that it would offset the Exchequer’s loss of Stamp Duty receipts. This centrally- collected revenue could potentially be redistributed to local areas that have higher local spending needs and / or greater need for local economic investment.
These arguments can all be recognised within the design of PPT, along the following lines:
- PPT revenues split into a council allocation and a central government allocation. A council and central government would each “own” a share of the PPT rate. The council allocation would ideally be large enough to encourage councils to pursue local growth initiatives.
- Councils given power to flex the rate of PPT that gives them their PPT allocation. Councillors could make decisions to increase or decrease the rate on their PPT allocation, much like councillors can make decisions to vary Council Tax now.
Stability in PPT revenues would be desirable at both a local and national level. Should there be times when revenues from PPT drop significantly, the Government could step in with grants to fill the gap.
The impact on council finances
Upon introduction PPT would raise the same amount of revenue as Council Tax does now.
But because PPT is linked to local property prices, the amount of PPT revenue raised in some council areas would be significantly different – much larger or much smaller – from the revenue they currently raise from Council Tax. This is because Council Tax is based on valuations from 1991 and does not adequately reflect the substantial change in regional house price growth or generational imbalance that house price growth has created.
For those councils that would raise less from PPT than they currently do from Council Tax, the difference would have to be made up with central government grants or from funds redistributed from councils that raise relatively large amounts of PPT revenue (or both).
This type of arrangement is not new. It has been a feature of local government finance in England for decades. It could be incorporated seamlessly into PPT with the following principles:
- Government should fully recognise how council revenue raising capacity is changed by PPT in its arrangements for funding local government. In other words, the ways in which the Government decides how to direct funding across all of local government should consider the individual capacity of councils to fund themselves.
- Councils could be given new powers to generate more revenue independently. Given that some revenue raising capacity could be lost by councils, there are opportunities for new revenue raising powers to be introduced. One example, would be to give councils the power to implement a levy on overnight tourist stays. Another example would be to reform planning permission to allow councils to build more houses.
It would be understandable if some councils were sceptical about transitioning to PPT if they have less capacity to raise revenue. But it is important to note that those council areas that see the biggest reduction in revenue raising capacity are also the areas where the greatest proportion of residents will see a reduction in their property tax bills or experience no change in their tax liability as a result of PPT. The policy would also introduce incentives for companies and individuals to relocate to areas with lower PPT, which in turn would benefit the community. In time this would lead to higher PPT revenues for the community.
The impact on council residents
Unlike Council Tax, the obligation to pay PPT would be on the property owner, not the property tenant.
Overall, there would be far more winners than there are losers from PPT - 76% of England’s households will see a reduction in their property tax bills.
But due consideration needs to be given to those residents that may not benefit from PPT.
Some homeowners – predominately in London and the South East – would pay more in PPT than they currently do in Council Tax. This increase is ameliorated by the abolition of Stamp Duty Land Tax which is particularly punitive in this region due to the higher property prices.
Other residents who may not benefit are those currently receiving some form of assistance – by being exempt or paying a reduced rate – in paying Council Tax. How these residents are affected by PPT will depend upon how much help they have been receiving, and if they are homeowners or renters.
Fairer Share proposes a revenue neutral system retaining the same total quantum of funding provided by the current Council Tax Support scheme. In many areas the savings under PPT compared to Council Tax would be equal to (or larger) than the value of benefits received through the Council Tax Support scheme.
Mitigating action could be taken to support residents who pay more under PPT.
Fairer Share has already outlined some plans:
- At the point of transition to PPT, any increase in local property tax would be capped at £100 a month for primary residences. The transitional protection would disappear at point of sale but such buyers would have benefited from the removal of the punitive Stamp Duty.
- For those unable to meet the £100 a month increase under transitional protection, or in the longer-term, the full costs of PPT, there is a deferral mechanism until point of sale.
These mitigating actions are purely financial, but there are other options to consider, including:
- Giving councils the power to design their own systems for supporting low-income residents through PPT, i.e., not having centrally designed restrictions.
- Central government could offer councils financial resource for those negatively affected by PPT by increasing funding for Discretionary Housing Payments.
- The Government could offer generous PPT discounts for socially rented homes that meet the highest level of energy efficiency, moving from a system of grants and loans to one of market incentives.
Conclusion
The design of PPT can support council independence through a split of revenue allocations between councils and central government. It can fit into the current system of local government finance so that the revenue-raising resources and spending needs of councils are recognised. It can protect those who are asset rich / cash poor and / or are currently exempt from Council Tax or are eligible for a discounted rate.
This is all in addition to the other arguments in favour of PPT, such as working international precedents and a coherent approach to valuation.
Budget 2021 | The Elephant in the Room
When Rishi Sunak was drawing up the Budget, he had a golden opportunity to begin a wholesale review of one of the biggest blocks in the way of the Government’s levelling up agenda. By pledging to look again at our outdated and unfair property taxes, the Chancellor could have sent a clear signal to millions of households that levelling up was going to work for them.
Instead, council tax was the elephant in the room when the Chancellor delivered the Budget. While he set out economic support packages for those worst-hit by Covid-19, there was no such respite for the millions of modest and low-income households facing crippling council tax bills.
Throughout today’s address to the Commons, Sunak stressed the theme of fairness. But the truth is that the Chancellor’s silence on council tax sits awkwardly with talk of fairness and levelling up. The current council tax system is based on property valuations from 30 years ago, dating back to just before Nirvana released their breakthrough album Nevermind and Tim Berners-Lee released files describing his idea for the World Wide Web.
Furthermore, recent research has showed that residents of constituencies in the north and midlands clearly get the worst deal with council tax. While the average household in England presently pays out 0.47% of their home’s value in council tax every year, residents of Easington and Hartlepool must pay out more than 1.3% on average every year. Across the ‘red wall’, households must pay out an average 0.84%.
Thankfully, while he may have kept quiet about council tax in the Budget, the Chancellor has not yet closed the door on a review of property taxes. After Sunak spoke a lot about fairness today, the Government could still show its commitment to fairness and levelling up in a way that matters by announcing a wholesale review of property taxes.
What takes the place of council tax would then be a matter of debate but support is growing for the campaign to replace both council tax and stamp duty with a simple proportional property tax set at a flat rate of 0.48% of a property’s value.
Work by Fairer Share has shown that this tax would be revenue neutral for the Treasury while leading to lower bills for millions of people. Across England, around 76% of households would benefit under the new system, with households paying £435 less property tax a year on average. Across all the 44 so called ‘red wall’ seats in England which the Conservatives gained from Labour in 2019, 97% of households would be better off as a result of the policy with an average saving of £660 per year.
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. For those who wish to stay in their high value home and pay the new tax, losses would be capped so that, at the point of transition, no household sees an increase of more than £1,200 per year (£100 per month) on what they currently pay.
However it is replaced, the reality is that council tax is a bizarrely regressive tax which ensures that people who live in more modest houses and areas end up paying a higher tax rate than those living in wealthier areas and more valuable properties. On top of this, council tax also taxes tenants rather than owners and clearly does not take into account the ability to pay, leading to rising levels of council tax debt.
Having framed the Budget around fairness, the Chancellor should now show that he means action by looking again at our outdated and unjust system of property taxation. By signalling his desire to kill off council tax, Sunak would be sending the clearest possible signal that the levelling up agenda will definitely deliver for millions of households across the country.
Andrew Dixon
Fairer Share
Our Letter to the Prime Minister
Andrew Dixon, our campaign's Founder and Chairman wrote to Prime Minister, Boris Johnson last week, warning that the 'levelling up' agenda would be under threat if we continue on with our broken and unfair system of property tax. You can read more about the letter here.
Dear Prime Minister,
I am writing to you in my capacity as Founder of Fairer Share, a grassroots initiative campaigning to abolish Council Tax and Stamp Duty, replacing both with the Proportional Property Tax.
As Prime Minister, you have rightly made ‘levelling up’ one of your Government’s key ambitions. This is a plan I wholeheartedly support, and it is why I am writing to you today.
Over the last 30 years, we have witnessed rising inequality levels – both on a regional and an intergenerational basis. Sadly, COVID-19 has hit the poorest the hardest, particularly those in low-income, insecure work, and it has compounded, deepened, and underlined those prevalent inequalities.
The agenda you have set to level up is essential as our economy recovers. I firmly believe that we cannot level up our country without scrapping and replacing both Council Tax and Stamp Duty – two taxes that continue to exacerbate rather than ease these inequalities.
Today, I urge you to replace these regressive and destructive taxes as a central pillar of your levelling up plan.
Council Tax is an outdated and unfit system. It is based on property values made in 1991 and has led to low-income households paying a tax rate five to ten times higher than those fortunate enough to live in million-pound properties.
It is a regressive form of tax and disproportionately impacts struggling communities – the same communities your Government is aspiring to support. Evidence shows that the ‘red wall’ constituencies face “The Burden of Council Tax” that is nearly 80% higher than the national average.
The average household in England pays 0.47% of their home’s value per year, yet in many communities across the North and the Midlands, households pay a considerably higher rate, going up to 1.41%, with Easington in County Durham paying the highest rate. By comparison, the Cities of London and Westminster has an average rate of 0.06%. This system is fundamentally broken.
Meanwhile, Stamp Duty hinders aspiration and mobility, fuels intergenerational inequality and adversely impacts the broader economy. We need to find a solution to the well-intentioned Stamp Duty holiday.
Levelling up cannot be achieved solely through infrastructure spending pledges and Government cash. To help turn the tide, scrapping Council Tax and Stamp Duty would have a most significant impact on hard-working families and pensioners across the UK.
The simple Proportional Property Tax set at a flat rate of 0.48% of a property’s value would bring in the same amount of revenue as Stamp Duty and Council Tax combined. Our analysis shows that 19 million households in England would be better off, on average saving £435 each year. We also found that in the 44 ‘red wall’ constituencies that your Government won in the 2019 General Election, 97% of households would save £660 each year.
We all want to live in a fair society but it does not seem right that a household in Barnsley pays 1% of the property value in tax whereas a household in Battersea pays just 0.1%. Council Tax has become a troubling wealth tax for middle and low-income households, and is a modest service charge for the wealthy.
I urge you and the Chancellor to use tomorrow's budget to authorise a review of the country’s residential property taxes. I recommend the Government examine this issue through the lens of fairness, economic activity, social mobility, the Government’s levelling up agenda, and the impact of the pandemic on household and local Government finances.
There may never be a better time to reform this system – and I encourage you to be the Prime Minister to deliver this change and help us all to build back better.
Yours sincerely,
Andrew Dixon
Chairman
Fairer Share
WATCH | Homeward Bound: Putting Our Taxes Back On Track (Subtitles)
As we emerge from the pandemic, we must seek to create a fairer society. Our current property taxes are unjust, outdated and deepen the existing inequalities in our society. In order to truly 'level up', we need to change track.
To find out how, watch our short film: Homeward Bound.
A Review of Tory MPs’ Standard Response to Fairer Share
Many of our followers have received this standard response to our “Email your MP” campaign. This stock response from Conservative Party HQ makes some interesting arguments, focusing on the London Borough of Tower Hamlets as a case study. Fundamentally, we think they take a unique borough as an example and present a flawed case.
Several Conservative MPs support Fairer Share in spite of this stock response and they are making our case for reform both in private and in public. For example, John Stevenson (MP for Carlisle) wrote in Conservative Home and Aaron Bell (MP for Newcastle-under-Lyme) wrote in The Daily Telegraph making the political arguments for Fairer Share and The Proportional Property Tax.
The choice of Tower Hamlets:
- Tower Hamlets is one of the most diverse boroughs in the country in terms of wealth disparities, with huge concentrations of wealth in the financial centres around Canary Wharf and Aldgate alongside localised areas of high deprivation in areas like Shadwell, Whitechapel and Mile End.
- This means that there is a commensurately large disparity in the value of properties, resulting in both poorer renters and homeowners in fact benefiting from a move to PPT.
- Our analysis shows that c. 50% of primary residents in Tower Hamlets, which will disproportionately be those poorest households, would benefit from a move to PPT. This includes all households living in properties up to £250,000.
- It is predominantly in high wealth areas or those in large homes, that will see increases in their taxes.
- For those living in more valuable properties we have capped any increase in tax at £100 per month. This is just a £3 per day increase. Additionally, the household would still have the option to defer payment should they wish.
The stock response makes the following arguments (and our responses in the bullets below):
1. House price rises in low-income areas create higher payments for those who can least afford it.
- It is true that the average house price in Tower Hamlets has increased from £276,000 to £449,000 between January 2012 and March 2020. The average property owners at the upper-end of these increases, has gained £1,765 every month tax-free in property wealth over 8 years.
- The option to defer payment allows homeowners to capture this property wealth until a point of sale, meaning that low-income homeowners in this situation would see a huge windfall, not be impoverished by this policy.
2. Residents in Tower Hamlets are more likely to be renters, and therefore unable to benefit from any increase in house value. Furthermore, tax increases on the property can be passed to the renter by the landlord. This means increased expenditure for the renter.
- Our analysis shows that c. 50% of primary residents in Tower Hamlets, which will disproportionately be those poorest households, would benefit from a move to PPT. This includes all households living in properties up to £250,000 and includes both the owner and rental markets.
- Renters will not be able to benefit from any increase in house prices. However, this is true now where renters pay council tax. The removal of stamp duty will help those renters get onto the housing market and into the virtuous cycle of wealth generation caused by property ownership.
- Boroughs such as Tower Hamlets and other inner-city districts, such as Hackney, face the issues of a considerable amount of underused and vacant developments, and so would benefit from this encouragement to release much needed housing both in the rental market and for sale. A punitive rate on empty and second homes would encourage the release of these homes.
3. Local authorities can keep council tax lower than house price inflation in order to prevent drastically inflated council tax bills for local residents. This is reinforced by local democratic incentives.
- To maintain the important democratic link between local expenditure and local taxation, the 0.48% rate would consist of two components. A fixed national rate would go to central government for redistribution and a floating local rate would go straight to the local authority, and could subsequently be moved up or down by that authority.
- If a local authority, such as Tower Hamlets, is able to maintain its local services through other means of revenue, it would be able to provide a tax cut to its residents by lowering the floating rate.
- In this way local authorities retain flexibility over taxation and voters can still judge them on value for money.
- It is also worth noting that recent polling of Local Councillors shows that a fair national system which may come at the expense of some local autonomy is disproportionately favoured and 89% of councillors said that council tax is in need of some sort of reform.
4. 95% of second homes pay full council tax and empty homes can be charged at double the rate of council tax.
- Boroughs such as Tower Hamlets and other inner-city districts, such as Hackney, face the issues of a considerable amount of underused and vacant developments, and so would benefit from this encouragement to release much needed housing.
- It is well known that major housing developers in these areas market their luxury properties internationally, inflating the prices of luxury flats, while the flats themselves remain unoccupied or under-occupied.
- Incentivising housing for primary residents is a notional goal of the Government, which has acknowledged the housing crisis. By placing higher rates on second and empty homes and automatically enforcing them, the Government will incentivise sales to UK primary residents and help alleviate the issue.
If you have received an email from your MP that uses the Tower Hamlet example, the points above can be used if you would like to respond. If you have any questions on the above, please email us at support@fairershare.org.uk
The Fairer Share Team
Our Response to Anthony Browne’s Review of PPT
Since launching Fairer Share in the spring of 2020, we have been inspired by the 100,000 households who have signed our petition calling for reform. These have come from all walks of life – young families struggling to get by in the face of rising Council Tax bills, hard-working families in tenanted accommodation, grandparents wondering how their grandchildren will find a way onto the property ladder, the housing industry looking for alternatives to Stamp Duty.
We have appreciated the support and encouragement of leading think tanks and academics. We have been excited by our engagement and interaction with leading MPs from across the political spectrum.
Feedback has been extremely positive. And we welcome the thorough, if somewhat unfavourable, review of our policy undertaken by Anthony Browne, the MP for South Cambridgeshire, who wrote in The Spectator that such a reform 'would be a disaster'.
Mr Browne has a great deal of experience in these matters and we appreciate the time he has taken to consider our reforms. We feel it is only fair to him and also to our many supporters, who will want to make sure they are backing the right horse, that we examine Mr Browne’s concerns in detail. We have responded in a Q&A format below.
The Spectator
A proportional property tax would be a disaster (19 January 2021)
Anthony Browne MP
Two of the most unpopular taxes in Britain are stamp duty and council tax, property taxes both, seen as economically damaging and unfair. So it is not surprising there is a noisy campaign, gaining widespread coverage, to abolish them both and replace them with a simple 'proportional property tax'. The more your home is worth, the more you pay — what could be fairer and simpler?
Fairer Share
Well said, and on this we obviously agree.
Anthony Browne MP
Although well intentioned, this new property tax is a genuinely bad idea. To be revenue neutral for the Treasury, campaigners estimate it needs to be set at 0.48 per cent of the value of the property per year — so that someone with a £1 million home will pay £4,800 a year in this tax. In other words, you would have to give about 5 per cent of the value of your home to the government every decade.
Fairer Share
Just as a reminder, we propose to abolish Stamp Duty. In January, Mr Browne spoke very eloquently about the benefits of scrapping this economically inefficient tax during the Stamp Duty Land Tax (Temporary Relief) Bill debate.
Under the current system, someone who is planning to buy a £1 million home will have to pay £43,750 in tax before they have even collected the keys. Paying 4.8% over 10 years with Fairer Share is better than paying 4.4% up front. And, of course, the house buyer would be paying Council Tax as well over the 10 years – this could equate to a further 3%, and probably more.
Anthony Browne MP
The obvious losers are the asset rich and cash poor, who live in a valuable home but don’t have much income. That covers not just pensioners but downshifters who have paid off their mortgage and taken a lower income job and those who inherited and moved into a family home. Others will be workers on a steady income — such as teachers — who happened to move to an area that then experienced property price rises. These are people who will simply be taxed out of their family homes.
Fairer Share
No one will be taxed out of their homes. Those living in houses valued at £500,000 or less (90% of all households in England) are likely to see a reduction in their tax bills because the future proportional property tax will be less than their current Council Tax payments.
Anthony Browne MP
One possible solution is to allow them to roll over their tax debts until their home is sold or until death, but it is seriously unfair for the government to impose a tax that it knows is unpayable and force people to build up huge tax debts.
Fairer Share
For owners of high value homes the increase in tax would be capped, so that at the point of transition, no household would see a rise of more than £100 per month (£3.29 per day). And as Mr Browne suggests, we would provide these households with the option to roll over the tax payment, at a modest interest rate, until point of sale or change of ownership.
However, any debts built up as a result of deferring a payment would be considerably lower than wealth gained from rising house prices. Assuming 4.8% annual house price inflation, housing assets would increase at 10 times the speed of any tax liability. House prices would have to increase at less than 0.48% per year for the tax debt to exceed the value of the housing asset.
Just to be clear, and this is a very important point, absolutely no one will be forced out of their homes. If they live in a modest home, they will see a reduction in their tax bill. If they live in a larger property, they can either choose to pay the additional charge, which even for the largest and most valuable homes would be capped at a £1,200 increase per year or they can choose to defer payment until they sell the property.
Anthony Browne MP
Such a tax would be powerfully anti-aspirational: if you improve your home to increase its value, the government would punish you by charging forever bigger tax bills.
Fairer Share
You make the very good point that a tax on the value of the land rather than on the property would encourage improvement of the nation's housing stock. In an ideal world we would indeed have a Land Value Tax which would not increase the tax burden following home improvements. However, the Government have shown very little appetite to implement such a reform.
With a rate of 0.48%, the tax equates to less than 1/200th of the increased value. Would a proportional property tax truly be a disincentive to increase the value of one’s property? Such a payment would be much less than the 20% VAT rate charged on materials, so it could be argued that a proportional property tax at 0.48% per year is no more of a disincentive to improve one’s home than VAT, which is charged at 20% and is paid upfront.
Anthony Browne MP
It would undermine local democracy and accountability, effectively nationalising the revenue raising abilities of local authorities.
Fairer Share
It is for this reason we have a fixed national component which would go to central government for redistribution and an initial floating local component which would go to the local authority and could subsequently be moved up or down by that authority. In this way local authorities retain flexibility over taxation and voters can still judge them on value for money. As happens now, there could be limits on how this flexibility to set local rates is used, including the requirement to hold a local referendum if it is proposed that the local share of the tax were to be raised above a certain limit. The Local Government Chronicle covered these important issues in this review.
Anthony Browne MP
It would be introducing Corbyn’s class-envy mansion tax for him, alienating the Conservative base and convincing Labour supporters they are right.
Fairer Share
We respectfully but strongly disagree. This is not a tax increase - overall our policy is revenue neutral. We are scrapping both Stamp Duty and Council Tax, replacing both with a fairer proportional system. On the topic of a proportional property tax, the Daily Telegraph’s Economics Editor Russell Lynch wrote: 'this is not a "mansion tax" or anything like it.' Neither is it in keeping with a wealth tax, which is generally understood to be imposed upon an individual’s entire net wealth.
Meanwhile, we should keep in mind the results of the 2019 General Election, demonstrating the changing nature of British politics and the Government’s subsequent commitment to “Level Up”.
In many ‘Red Wall’ seats, 100% of households would be better off under a proportional property tax, but the benefits would not just be felt in the north of England. Our research shows that households across England would pay on average £435 less property tax each year. At the next general election, the constituencies of South Cambridgeshire, Saffron Walden and Surrey Heath, for example, would all be able to point to savings for the majority of households.
We can highly recommend these two articles in Conservative Home by Kevin Hollinrake (Thirsk & Malton) and John Stevenson (Carlisle). They outline the political arguments and clearly demonstrate this is not a class-envy mansion tax.
Anthony Browne MP
Campaigners say there would be more winners than losers, but it is always the losers who are loudest, and people forced out of their homes shout very loud indeed.
Fairer Share
As previously stated, absolutely no one will be forced out of their homes, and whilst we agree with Mr Browne that there may be objections from those in the wealthiest corners of the country – those with the good fortune of owning more expensive homes or even multiple properties – the fact remains that 76% of households up and down the country would benefit from and welcome this reform.
We believe there will be overall support for a fairer solution, as opposed to the adverse impact the current system is having on other people’s lives. We all want to live in a fair society, and paying the same rate of 0.48% of the property value is surely better than the current system, where someone in Barnsley pays 1% and someone in Battersea pays 0.1%.
Anthony Browne MP
There are fundamental flaws with basing a regular tax payment on the value of a speculatively-driven illiquid asset.
Fairer Share
Should the same argument apply to Council Tax?
Not only is Council Tax out of date, it also taxes tenants - those who don’t even own the property – rather than owners, hitting the asset-poor and income-poor. Given rising levels of Council Tax debt, it clearly does not take into account 'the ability to pay', a problem worsened by recent Council Tax increases that have exceeded current levels of inflation.
Anthony Browne MP
A new train station or cuts in interest rates could push up the value of your property but you would have no extra money to pay the increased taxes.
Fairer Share
As noted, increases will be capped at £1,200 per year and those unable to meet this increase will have the option to defer the bill until the point of sale. The vast majority of households will not require these protective measures. 76% of households will see an immediate reduction in their tax bills.
But you raise a very interesting point which adherents of Henry George may wish me to address. The value of the UK’s housing stock has increased by over £3.5 billion during the pandemic. There are many £3 million+ mansions that have increased by £150,000 in value during the pandemic – arguably this is what is known as ‘unearned’ and untaxed wealth – and owners of such properties have also been in the fortunate position of benefiting from low interest rates and the Stamp Duty holiday, the latter of which Mr Browne aptly described in his SDLT (Temporary Relief) Bill speech as “so effective in rapidly driving up activity in the market and releasing the animal spirit.” These owners of large and high value properties, and many other households, can afford to pay an additional £100 per month in property tax, although again, they have the option to defer.
This topic of ‘unearned’ and untaxed capital appreciation from property ownership is fascinating. I note the comments of Sir Winston Churchill, writing about property and land in 1909, “Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still.”
“Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived.”
The south east of England has benefited from the extensive infrastructure investment that has been made in the region – Jubilee Line Extension, Eurotunnel, Heathrow Terminal 5, Crossrail. These projects have fuelled property prices and led to larger discrepancies between house prices in London and the rest of the country. Given these ‘unearned’ and untaxed windfall gains it does not seem particularly fair that the property owners pay a lower tax rate than other parts of the country which have not benefited from this sort of investment. And of course, the higher property prices in London and the south east have made ownership much more challenging for younger generations.
Anthony Browne MP
If it was set at a national rate but collected locally like business rates, those councils with high property prices would get huge tax incomes they don’t need but cheaper areas would get less than they need. One solution is to have locally set rates, but that would mean that high price areas would have low tax rates, and poorer areas would have higher rates — the epitome of unfairness.
Fairer Share
Under a proportional property tax - as historically has happened within local government finance - some councils will receive additional funding from other parts of the local government finance system. The size of this additional funding would be based upon an assessment of the difference between a council's resources (its tax base) and spending needs. As the Institute for Fiscal Studies note, if local tax bases change in size when reforming local taxation and resource equalisation is still a desirable aim of policy then it would require funding levels to adjust, “…increasing them for those [local authorities] whose tax base falls, and reducing them for those whose tax base rises.”
While the exact approach to this adjustment would depend on the context of local government finance at the time, an underlying principle would be to take account of the relative size of a council’s proportional property tax base, and not the revenue that a council intends to generate from that tax base. What this should mean in practice is that two local authorities with similar tax bases and a similar assessment of relative need would receive broadly similar baseline funding levels, irrespective of their local proportional property tax rates.
Anthony Browne MP
These sorts of taxes are common in the US and have destroyed many towns by pushing them into a downward spiral with taxes so high no one wants to live there, so property prices plummet, and their tax revenues fall, so they have to push up the rates, so more people leave. They provoke such constant heated political outrage in the US they make the UK’s stamp duty seem loved.
Fairer Share
The reality is that the current system, through Council Tax and Stamp Duty, already taxes property. The Proportional Property Tax would simply do the same, but would do so more efficiently and more fairly, generating cash savings for 76% of households up and down the country. Our proposed 0.48% rate is substantially lower than that paid in many other parts of the world; in the cities of New York and Miami, annual property tax rates are in excess of 0.85%.
Anthony Browne MP
By contrast, the design of the council tax leads to predictable revenue for councils and bills for residents.
Fairer Share
We are not convinced that Council Tax leads to predictable revenue for councils. Unforeseeable circumstances such as the current pandemic can abruptly and significantly disrupt any revenue flow, including Council Tax, as recently noted by Citizens Advice: “Council Tax is one of the bills that people have been struggling with the most. We estimate that over 3.5 million people are currently behind on Council Tax.” Moreover, an individual council could adjust its proportional property tax rate to keep bills consistently at the same level.
Anthony Browne MP
Such a 'proportional property tax' is clearly a form of wealth tax but imposed on the most sensitive asset that people own — their own home. Normally wealth taxes exclude people’s homes because it is too toxic.
Fairer Share
Surely the same must apply to our current property taxes. Both Stamp Duty and Council Tax are already paid out of post-tax income and assets, and both are based on the value of housing – Stamp Duty specifically, and Council Tax more loosely (the latter is based on property values that have not been updated since 1991).
Furthermore, the £3.29 per day cap on any increase at the point of transition is not in keeping with a wealth tax, which is generally understood to be imposed upon an individual’s net wealth, or the market value of their total assets less their liabilities.
Anthony Browne MP
It is likely that this wealth tax would be expanded quickly to less sensitive assets, such as people’s savings and investments.
Fairer Share
We are not campaigning for any additional taxes. Indeed, it is our belief that a reform of the country’s de facto wealth taxes – Stamp Duty and Council Tax – will negate the need for a wealth tax on people’s savings and assets.
Another advantage of reforming property taxes is that due to improvements in technology, properties can be accurately valued, and unlike financial assets, homes cannot be hidden or shipped offshore. The great British public do not mind paying taxes but they do mind when it transpires that some are not doing their bit or paying their fair share.
It should also be noted that the wealthy have a portfolio of assets, of which property may be just one part, whereas those on more modest means - whose assets are either tied up in property, or who own no wealth at all – are paying up to 1% per year in property tax. The impact is even greater when one considers Council Tax as a percentage of post-tax disposable income.
Anthony Browne MP
But wealth taxes are disastrous. We have been taking evidence on them on the Treasury Select Committee, and the most striking evidence is that almost all countries that introduce wealth taxes end up abandoning them after they have wrought economic carnage. Even the UK’s Wealth Tax Commission, set up to recommend a wealth tax, ended up recommending against them — except possibly as a one-off never-to-be-repeated event to limit the damage.
Fairer Share
We agree and we are not campaigning for a new wealth tax. We are campaigning to reform property taxes so that there is a greater degree of fairness and simplicity.
Within Mr Browne’s constituency of South Cambridgeshire, for example, someone living in a modest band A property pays 0.80%, whereas someone in a higher band H property pays just 0.16% of the property value. In other words, it would appear that Council Tax is a wealth tax that perversely places the greatest burden on those with the least wealth in the first place. We have been inundated with stories from supporters who are struggling to find the money to pay their Council Tax bills.
It would appear that Council Tax has become a wealth tax for modest and low-income households and remains a simple service charge for the wealthy.
Anthony Browne MP
The reason that wealth taxes (which should really be called asset taxes) provoke such anguish is they break a fundamental covenant between individuals and government: work hard and pay your taxes, and what savings and assets you build up in your life you can keep and the government won’t take from you. It is a fundamental right in a liberal property-owning democracy.
Fairer Share
The fact is that the Government already taxes savings and assets through Stamp Duty and Council Tax. And both are paid out of post-income tax earnings.
Drawing on the comparison with existing property taxes, if someone were to buy a £1 million house after the Stamp Duty holiday, they would have to pay £43,750 in tax. This is a direct cost, paid upfront and cannot be thrown in with the mortgage. In addition, the home buyer has lost the future earnings from this large tax payment.
If we make the very reasonable assumptions of 3% house price inflation, 3% capital growth and 3% annual Council Tax increases it would take 45 years for a £1 million home buyer under Fairer Share to be worse off compared to the current system of Stamp Duty and Council Tax. With our reform, the house buyer would have the cashflow benefit of enjoying the saving at a time when it is needed – paying down the mortgage, raising a family etc.
Meanwhile, those who have bought smaller houses will be much better off due to the Proportional Property Tax bill being lower than that of Council Tax.
Following extensive polling, Tax Justice UK published an excellent paper highlighting growing concerns about the gap between the rich and poor and the importance of funding local services, finding that the public support higher taxes and that 74% of the public want the wealthier to pay more. Indeed, 69% supported reforming Council Tax so that it is more closely tied to a home’s current value (including 72% of Conservatives).
Anthony Browne MP
Council tax and stamp duty do need to be reformed. But when you read more about this proportional property tax, just remember: it is not the answer.
Fairer Share
Our solution is very similar to that put forward by leading thank tanks such as Institute for Fiscal Studies, IEA, IPPR, Resolution Foundation, Onward, Centre for Policy Studies. We have combined the best features of each.
And more recently we are grateful for the endorsement for a proportional property tax by leading economists in the national media including Martin Wolf at The Financial Times and Russell Lynch at The Daily Telegraph.
As we can see from our Constituency Data, under a proportional property tax, 56% of all the households in Mr Browne’s constituency would benefit from an average annual saving of £350, and 67% of households living in bands A-D would be better off.
Of course, no system of property taxation will make everyone happy. But a scenario in which a small number of homeowners have enjoyed a large increase in property value and a much smaller rise in their tax bill is surely preferable to the current system under which many hard-working tenants face 5% annual increases in Council Tax whilst not benefitting from a commensurate increase in property value.
If a Proportional Property Tax is not the answer, what is? Alternatives have been proposed.
Some have suggested extra bands for more valuable properties, but this would not raise sufficient revenue to fund the abolition of Stamp Duty and would not resolve the regressive nature of Council Tax.
Some have suggested a local income tax but a hard day’s work is already adequately taxed and does not address the intergenerational issues. As we know, those with greater assets find a way to reduce their income tax obligations.
Some have suggested imposing a Capital Gains Tax on sale of principal homes but this would hinder mobility and block up the housing market.
Some have suggested a 1% wealth tax on all assets, but this would be painful for hardworking families whose assets are primarily in their home, whilst the wealthier would find ways to move financial assets offshore or place in trust.
Households are already paying sufficient property taxes – the problem is that the wrong households are paying the wrong taxes at the wrong times. The current inequity exists within individual constituencies, between regions, and between the generations.
There is a growing political consensus that both Council Tax and Stamp Duty need to be reformed. As we begin to look beyond Covid-19 and deal with the inequalities that the pandemic has accentuated, we should seize the opportunity to scrap both of these taxes and bring in a fair and workable system of property taxation.
In his recent op-ed piece in the Daily Telegraph, Mr Browne’s colleague, Aaron Bell, who took Newcastle-under-Lyme from Labour for the Tories at the 2019 election, said: '...abolishing Council Tax and Stamp Duty and replacing them with a fairer property tax is the right thing to do for millions of people up and down the country. It is also the right thing for the Conservative Party to do if we are serious about delivering to those who voted Tory for the first time in a generation.'
We are indeed grateful to Mr Browne for taking the time to so thoroughly analyse our Proportional Property Tax recommendations, and for his well-informed and penetrating observations, which we trust we have adequately addressed in this piece.
We encourage Mr Browne to take another look at our proposals and we welcome further input.
Andrew Dixon
Founder, Fairer Share
Aaron Bell MP: Tories should scrap hated Council Tax in the wake of Covid crisis
This article originally appeared in Daily Telegraph on February 4th, authored by Aaron Bell, MP for Newcastle-under-Lyme.
As Rishi Sunak seeks to restore the public finances, a fairer property tax system should be part of the answer
Since the 2019 general election, the Prime Minister’s domestic agenda has necessarily been largely dominated by the twin challenges of getting Brexit done and the fight against Covid-19. Now the first item has been accomplished and, thanks to the brilliance of scientists, the vision of our Vaccine Taskforce and the hard work of our frontline NHS staff, the end is in sight on the second.
In the coming months, once the vaccination drive has had the positive impact that we all hope it will, the Government will face a third mighty challenge. As our focus turns to economic growth, and to building back better, we will need to show in no uncertain terms that the Conservative Party has delivered on the promise to level up those towns and cities previously left behind.
With the public finances stretched like never before, I – and an increasing number of Conservative MPs – believe the best way for the Government to show voters that this message has got through is by reforming our outdated property taxes. We should begin by overhauling Council Tax, which is not only based on property values that are thirty years out of date, but it is also deeply unfair – placing the heaviest burden on the young, low-earners, and those living in less prosperous parts of the country.
At the same time as killing off Council Tax, we should permanently abolish Stamp Duty. This terrible tax hinders aspiration and blocks up the property market by disincentivising homeowners of all ages from moving house. Both of these hated taxes could be replaced by a Proportional Property Tax set at a flat rate of 0.48pc of property value, creating a more modern and much fairer system of property taxation. Crucially, this would be revenue-neutral for the Treasury, while resulting in savings for the vast majority of households up and down the country.
Across England, it is estimated that 76pc households would gain under a Proportional Property Tax, with average households paying £435 less property tax a year. In my own constituency of Newcastle-under-Lyme, 97pc of households would benefit. And in some of the other “red wall” seats won from Labour at the last election, more than 99% of households would be better off.
Objections to this reform often focus on the idea of pensioners being forced to sell, however the reality would be rather different. Nobody would be taxed out of their family home. Instead, for anyone struggling to foot the bill for a house that has risen in value, we could allow deferral of property tax at low interest rates, with payment delivered at point of sale. Additionally, a cap of £100 per month on the increase in payments until the point of sale would mean limited increases for those cash rich but asset poor households who choose to stay in their home.
Abolishing Council Tax and Stamp Duty and replacing them with a fairer property tax is the right thing to do for millions of people up and down the country. It is also the right thing for the Conservative Party to do if we are serious about delivering to those who voted Tory for the first time in a generation. This policy can help us turn the Red Wall into a Blue Barricade.
Before the next general election begins to loom on the horizon, voters will be asking what the levelling up agenda has delivered. As the Chancellor seeks to restore the public finances, a fairer property tax system should be part of the answer.
Aaron Bell is the MP for Newcastle-under-Lyme
John Stevenson MP: Property tax reform is key to levelling up the country and the Conservatives’ electoral chances
This article originally appeared in Conservative Home on February 3rd, authored by John Stevenson, MP for Carlisle.
The 2019 general election was won and fought on a clear mantra of “getting Brexit done”. Now that we have left the European Union and as we eventually emerge from the pandemic, it is time for the Prime Minister to re-focus on his mission to level up the UK.
Let’s be in no doubt that the Conservative Party’s electoral chances in 2024 depend to a large extent on whether people across the UK, and especially in the “Red Wall”, feel and see the benefits of this agenda. This was always going to be the case, even before the outbreak of Coronavirus. The pandemic has simply underlined some of the economic and social issues that have existed in Britain for too long. As a result, the task of levelling up has become more urgent.
The first challenge to overcome is one of definition. Who can explain what levelling up actually means? I understand work is going on behind the scenes to do exactly this. This needs to happen at pace alongside a clear set of metrics which can track progress on measures to which people can relate, from local healthcare and educational outcomes to unemployment levels and spending power. By regularly assessing progress in each of these metrics, locally accountable political leaders can identify specific challenges that are relevant to their community and put in place relevant improvement plans.
Second, the public are going to want to see results. Alongside the progress tracker, the Government and local MPs are going to require specific examples which they can use on the doorstep to show that constituents, their families and their communities are better off as a result of voting Conservative.
Brexit and then Covid have limited the amount of time and resource the Government can spend on working up specific policies which can be delivered before the country next goes to the polls and which chime with the electorate. Major infrastructure programmes are needed but these are often projects that take years to initiate and have little traction at a community level until final completion. As the saying goes, all politics is local.
Of course, the state of the public finances is also a huge problem for the Government. Any change of policy has to therefore be assessed on whether it delivers against a clearly defined vision of levelling up, whether local people can see and feel the benefits in their everyday lives, and whether it is cost-neutral or (ideally) a revenue raiser for the Treasury.
This is why a fundamental reform of property taxation is so appealing and could form a key component of the Government’s efforts to level up the country. The current system is out of date, confusing, unpopular, unequal and most importantly unfair. The Chancellor has acknowledged the need to make the system fairer and property taxes would be the ideal place to start.
The two obvious examples which irritate people from every walk of life are council tax and stamp duty. Council tax is based on property values from 1991 – 30 years out of date. That means that someone living in a house worth £100,000 pays around five times more tax as a share of property value than someone living in a home worth £1 million. Just 29 per cent of the public believe that council tax is calculated fairly and only 26 per cent believe that their own bill is set at the correct level.
Council tax has failed to keep up with the substantial increase in property values, especially in London. This has deprived the Treasury and local councils of much needed revenue and meant that lower income households outside the capital are paying more as a proportion of their home’s actual value than they should be. This has a profound impact, through no fault of their own, on their disposable income.
Stamp duty is a property tax which is an attack on aspiration and ownership. By taxing property transactions, stamp duty discourages homeowners from moving – be it an older couple downsizing or a growing family upsizing – that would lead to more efficient use of the country’s housing stock. The fall in transactions ultimately results in fewer new homes being built because the market signals, to which housebuilders respond, are distorted. Rishi Sunak’s stamp duty holiday to date has mitigated this damage, and wholesale abolition would be an even more potent remedy.
A fairer system would be to completely abolish both council tax and stamp duty and replace them with a new property tax which reflects the current value of people’s homes. A proportional property tax if you will. By setting that tax rate at 0.48 per cent the campaign group, Fairer Share, has calculated that over three quarters of households would be instantly better off.
The average household would see an additional £435 a year in their back pocket, while in some areas of the country such as Bishop Auckland and Bolsover the average household could respectively be £900 and £750 better off each year. Importantly the revenue raised would be split between central government to redistribute across local authorities in the form of grants, and local authorities would take a proportion of the overall rate.
From a political perspective, 97 per cent of households located in the “red wall” seats in England that the Conservatives took from Labour at the last election, would be better off. Traditional Tory seats would also fare well from this policy. In the Chancellor’s own constituency of Richmond, Yorkshire, 92 per cent of households would be better off to the tune of £600 while in South Cambridgeshire the average household would save £350 each year.
Obviously, creating a fairer, more transparent, and up to date property tax system would also mean that some households would end up having to pay more every year to reflect the current price of their home. That is why it is important that any such policy protects these people, who through no fault of their own or indeed through their own renovation work, have benefited from their home increasing in value.
To that extent, Fairer Share is proposing a monthly £100 cap on the total increase any one household could pay which would disappear at point of sale. At the same time – and to help those who are cash poor but living in a high value property – the new tax could be deferred until there is a change of ownership meaning that they wouldn’t lose out financially from the policy.
Replacing council tax and stamp duty with a proportional property tax is the right thing to do for millions of people up and down the country. This reform would have an impact beyond the regional. Ten years of low interest rates have led to increasing asset prices making houses unaffordable for the young and potentially driving them into the arms of the opposition. A solution needs to be found to protect the votes of tomorrow.
Politicians are still chastened by the memory of the negative reaction to the bungled and unpopular poll tax. And since then, council tax and stamp duty have become so unpopular that politicians are anxious about even raising the topic.
But “politics” can no longer be the excuse for failing to implement meaningful property tax reform. The changing political landscape may well be the catalyst for reform. It is the right thing to do from a political perspective, demonstrating that fairness is at the heart of everything the Conservative Party stands for.
With the next election beginning to loom on the horizon, this is a policy which will work on the doorstep and become the perfect flagship policy for the Prime Minister’s vision of levelling up the country.
John Stevenson is the Conservative MP for Carlisle.