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.
Fairer Share Report | Council Tax overhaul could free up 600,000 homes on to the market
A new report from Fairer Share and WPI Economics found that thousands of homes for first time buyers and young families would be freed up by scrapping council tax and reforming the property tax system.
Read the full report | Taxing Times: A fairer deal for future generations
The report reveals that bringing in a proportional property tax could release up to nearly 600,000 homes in total - including more than a quarter of a million one and two bedroom ‘starter homes’.
In many cases, dwellings would be released by encouraging people to sell their second homes through higher taxation of these properties.
The latest findings put further pressure on ministers to bring in a proportional property tax which is backed by think tanks including the Institute for Public Policy Research and the Centre for Policy Studies and by several Conservative and Labour MPs. The Ministry of Housing, Communities and Local Government Select Committee has also urged the Government to consider PPT as an option for wider reform of council tax.
Campaigners are calling for the abolition of council tax, stamp duty and the bedroom tax and the introduction of a PPT set at a flat rate of 0.48% of a property’s value. The policy would mean higher bills for second home owners but lower bills for 76% of households in England.
The new report by WPI Economics considers how many homes would be released as a result of increased transactions brought about by PPT. It also estimates how many dwellings would be released thanks to more second homes becoming available, empty homes becoming easier to sell and more homes being built sooner.
Under the most pessimistic assumptions, 175,000 homes would be freed up over the five years after PPT was introduced. In the most optimistic assumption some 595,000 homes would be released throughout England.
Within this figure, it is estimated that there would be 255,000 one and two bed homes for first-time buyers and a further 249,000 three bed homes for young families to move into.
Top 10 local authorities with most homes released after introducing proportional property tax:
- Cornwall UA - 15,057 homes released
- Birmingham - 9,021
- Leeds - 7,694
- Bournemouth, Christchurch and Poole - 7,386
- Dorset UA - 7,341
- Manchester - 7,073
- Bradford - 6,261
- Tower Hamlets - 5,967
- Durham UA - 5,962
- Northumberland UA - 5,945
In London, up to 47,000 one and two bed starter homes would be released - more than any other part of the country. There would also be up to 32,000 larger homes freed up in the capital.
Across England, Cornwall emerges as the local authority area in which most homes would be released with the figure standing at 15,057. This is in part due to the high number of second homes in Cornwall that would be released on to the market as primary residences under PPT.
Andrew Dixon, chairman of Fairer Share, said:
“By sticking with the current unjust and outdated council tax regime, ministers are effectively sticking two fingers up at young people in this country.
“Scrapping council tax and implementing a proportional property tax would not only deliver lower bills for most households, while reducing them to zero for renters. Our report shows it would also pave the way for the release of many thousands of extra homes for young people and families who need them.”
“If the Prime Minister really believes in levelling up then he should prove it by making property taxes fairer for everyone. The reality is that the levelling up agenda is doomed to fail without a fundamental reform of the property tax system.”
Simon Fell, Consevative MP for Barrow & Furness said:
“The current system of council tax is outdated and unfair. Introducing a simpler and fairer property tax system could reap huge benefits for millions of people across the country making it transparent and fairer for all, and especially lifting a disproportionate burden from the young. As we look to level up across the UK, I can think of a few measures that would better demonstrate to people that this government is determined to deliver on its promises to people who lent us their vote in 2019.”
Rt Hon John McDonnell, Labour MP for Hayes & Harlington and former Shadow Chancellor of the Exchequer said:
“Analysis from the Fairer Share campaign shows that moving to a proportional property tax would not just mean lower bills for most households, it would also free up thousands of homes for people who need them.“
Lord Willetts, Conservative peer and president of Resolution Foundation’s intergenerational Centre, said:
“The cost of housing is holding back the younger generation. We need to get more housing onto the market for them. A Proportional Property Tax is key to this. It would replace council tax which has become increasingly regressive and is particularly hard on young people. I welcome this important report.”
IPPR Report | Replace ‘unfair and outdated’ council tax with a tax directly related to value of every home
The 30-year-old council tax should be scrapped, along with stamp duty, and replaced by a new tax, based directly on the value of every home, according to a report from IPPR.
Read the full report | Pulling Down the Ladder | The case for a proportional property tax
Instead of a system based on outdated property valuations, which means council tax paid on the nation’s most expensive homes has lagged far behind their soaring values, the government should introduce a proportional property tax (PPT), the think tank says.
If set at a flat rate designed to raise the same amount of tax as council tax and stamp duty combined, a PPT of around 0.5 per cent could mean three quarters of households in England paying less than now, IPPR argues.
Making the change would help tackle regional inequalities, with people living in areas with lower house prices likely to gain, compared to those in regions such as London and the South East where prices are highest. It would also be fairer, with the best off paying more compared to the current system - under which the lowest earning households (by income decile) pay around twice as much council tax as the highest, as a proportion of their income.
It looks at three main options for reform: a new proportional property tax (PPT) alongside stamp duty abolition; a land value tax; and ending the capital gains tax exemption on the sale of anyone’s primary home. It also examines the option of further amending council tax by introducing new, higher bands for the most expensive homes. In its report IPPR also analyses in detail a specific proposal for a proportional tax alongside abolishing stamp duty on residential property sales, put forward by the Fairer Share campaign group.
It concludes that a PPT would be the best option for addressing wealth and regional inequality, while also driving better use of the UK’s existing housing stock and leading to a more balanced housing market. According to the IPPR analysis, introducing the new tax in this way could:
- Support levelling up, by more accurately reflecting the variation in house prices across England than the outdated council tax system, with the highest taxes being levied proportionately upon those with the most property wealth.
- Reduce tax bills for most households, making poorer households better off by putting more disposable income into their pockets. Under the Fairer Share proposal, the new tax would be set at 0.48 per cent in order to be revenue neutral, and more than 75 per cent of households would gain.
- Spur more efficient use of existing housing, leading to fewer houses remaining empty or under-used in high demand areas of the country.
- Encourage a rebalancing of property values across the country, with prices likely to fall in the long run in expensive areas compared to those elsewhere.
- Stimulate the economy, with poorer households that gain from the tax reduction likely to spend more of their extra disposable income.
The report acknowledges that there would be practical issues to address, including a new mechanism for redistributing the increased revenue from areas where property values are high, to areas where lower values will yield less tax than under council tax. It also examines ways to soften the immediate impact on owners of high-value homes, who could otherwise see their tax bills leap overnight, and concludes that there are several options.
It calculates that a PPT would lead to the biggest house price falls – up to 3 per cent – in areas of London and the East and South East, while the 10 most affected areas, primarily in the North East and North West, could see rises of up to 11 to 15 per cent. Such increases could incentivise increased house building, the report notes. IPPR analysis of these house price increases finds the biggest rises would be concentrated in areas where home are currently most affordable.
Shreya Nanda, IPPR economist and author of the report, said:
“The housing market has been almost entirely responsible for growing wealth inequality since the 1970s. Over this period, while consumer prices have increased by a factor of 11, house prices have increased a staggering 60 times. These gains should have been shared fairly across society, but instead they were captured by older, wealthier homeowners and landlords.
“Those who did not own property during the long house price boom have been locked out, and too many face steep rents, cramped flats, and eye-watering mortgages. A proportional property tax would instead ensure that these gains were shared more fairly across society.”
George Dibb, head of IPPR’s Centre for Economic Justice, said:
“Council tax is unfair and outdated. It’s based on property valuations from 1991 and poorer households pay a higher percentage of their property value in tax.
“It’s time to replace it with something fairer: a proportional property tax would be more equitable, with all households paying the same rate and would help address regional inequalities in housing wealth. To raise the same amount of revenue as council tax and stamp duty, a proportional property tax would mean lower taxes for 75 per cent of households.”
Council tax valuations have been around since Chesney was No. 1
This article first appeared in The Big Issue on August 21st 2021, written by Fairer Share Founder, Andrew Dixon.
Council tax has been with us since The One And Only was No. 1, but it's pushing the poorest deeper into hardship, says Andrew Dixon. Property tax needs reformed, urgently.
To say our current property tax system is out of date would be a major understatement. Council tax is based on property valuations from 30 years ago, undertaken when Chesney Hawkes was No. 1. Perhaps The One and Only was simply a reference to your first, and so far only, council tax evaluation.
Partly as a consequence of being so behind-the-times, council tax is also deeply unfair. People who live in modest homes get a worse deal than those living in the wealthiest areas, while struggling renters are hit just as hard as their, often older, counterparts who have made it on to the property ladder. Too often, council tax works for the millionaires rather than the millions – and works against the drive towards intergenerational fairness.
That’s why the Fairer Share campaign is pushing our parliamentarians to back a fairer system that works for everyone. Our analysis shows that if the government were to scrap council tax and stamp duty and bring in a simple proportional property tax, this would bring in exactly the same amount of revenue as the current arrangement. Set at a flat rate of 0.48 per cent of a property’s value, and a proportional property tax would mean lower bills for 76 per cent of households in England and average savings of £435 a year. Furthermore, 99 per cent of the households in the most deprived 10 per cent of constituencies in England would benefit from the change.
Of course, inflated prices mean the value of some homes may not always tally with the finances of those who own them. For that reason, there would be safeguards in place to protect those who live in valuable properties yet do not have a lot of disposable income. Under a proportional property tax, the so-called “asset rich, cash poor” who cannot afford to pay it would have the option to defer payments and pay instead a modest interest rate until they sell up and settle the balance.
For 30 years council tax has been writing its own obituary. But, since the pandemic hit, changing the financial outlook for millions of people, the case for abolishing council tax and bringing in a fairer property tax system in the UK has only become more compelling.
"Council tax is one of the household bills on which millions are falling behind, creating debt and forcing people out of their homes"
Earlier this year, Citizens Advice revealed that council tax debt was the number one debt issue they were dealing with, seeing people racking up millions in arrears as a result of Covid-19. This month, we also learned that
2.5 million people are behind on their broadband bills, with 700,000 of them falling into the red during Covid. It comes at a time when people are more reliant on broadband for work and for helping their children with school work, with UK adults spending an average of 22 hours online each week.
At the same time, charities have reported a sharp rise in benefits issues, rent arrears, court action and potential eviction and homelessness since the onset of the pandemic. As protections put in place for renters came to an end in England in May this year, polling showed that almost one-in-10 private renters were behind on their rent, equating to more than 350,000 tenants across the country. That polling coincided with a 17 per cent increase in people coping with issues around being evicted from their private rented accommodation, compared to the same period one year previously.
As The Big Issue’s campaign to Stop Mass Homelessness shows, these big bills for those struggling to get by cannot go on. Council tax is one of the household bills on which millions are falling behind, creating debt and forcing people out of their homes.
And, as The Big Issue’s Today for Tomorrow Campaign has rightly stated, the pandemic has shown we need more long-term planning in government. By building momentum behind Lord Bird’s Wellbeing of Future Generations Bill, the campaign is hopefully helping to make this happen and deserves to be widely supported, as it currently is by a range of organisations and MPs from all parties.
If passed, the bill will require the UK Government to work to prevent problems, including poverty, from happening. It would also require ministers to give current and future generations a voice in decision-making.
This is exactly the kind of approach that we need if households across the country are to receive the fairer property tax system they deserve. By scrapping council tax and stamp duty and introducing a fairer system of property tax, the government could deliver real ongoing savings to millions of people who have been pushed towards poverty and homelessness during the pandemic.
Instead, 30 years since it was drawn up, we are still stuck with “the one and only” regressive council tax system which unfortunately has more staying power than Chesney Hawkes.
Andrew Dixon is founder of Fairer Share, which works to reform out-of-date property taxes. #TaxHomesFairly
Answering HM Treasury's questions on the Proportional Property Tax
Throughout our campaign, we have been excited by our engagement and interaction with leading MPs from across the political spectrum. After receiving a constituent's email about Fairer Share, Colleen Fletcher MP, the member for Coventry North East, kindly put her constituent's questions to HM Treasury.
We welcome the review of our policy undertaken by HM Treasury and feel it is only fair to them and also to our many supporters, who will want to make sure they are backing the right horse, that we examine any concerns in detail. We have responded in a Q&A format below:
HM Treasury
The Government notes your constituent's concern about the valuation of domestic properties for council tax. As your constituent is aware, in England homes are put into one of eight valuation bands based on their capital value on 1 April 1991, and newly constructed properties are also assigned a nominal 1991 value. This is designed to ensure that all properties are valued on a fair and consistent basis. The Government has no plans for a revaluation, which would be very complex and expensive to undertake.
Fairer Share
The last revaluation of Council Tax was in 1991, before the invention of the internet, which makes it absurd to suggest that “all properties are valued on a fair and consistent basis”.
If it were the case that properties are valued consistently and fairly under the current system, why does Colleen Fletcher’s constituents of Coventry North East pay 0.76% of their property value in Council Tax each year whereas Michael Gove’s constituents in Mole Valley pay just 0.44%? Even within Coventry North East there is great discrepancy between Band A which pays 0.99% and Band B which pays 0.35%.
These figures would indicate property values are in fact entrenching the inequalities of Council Tax.
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.
If the Government thinks that valuation is politically difficult, then surely the best reason to undertake a valuation is to introduce a better system that brings with it serious political upside by putting cash in the hands of 76% of households. 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. Much of the rest of the world operates 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.
The IPTI points out “the biggest problem likely to be encountered in connection with PPT will be at the political level. Experience has shown that many UK politicians and governments have regarded council tax reform as an area to avoid but, in IPTI’s view, the present system does not operate as effectively or as equitably as many other property tax systems around the world, so there are sound arguments in favour of reform.”
HM Treasury
The Government also notes your constituent's concern about Stamp Duty Land Tax (SDLT). SDLT continues to be an important source of government revenue, raising several billion pounds each year to help pay for essential public services.
Fairer Share
Our policy is revenue-neutral. Revenue from the Proportional Property Tax (£36.7 billion) recoups lost revenue from the abolition of SDLT for primary homeowners (£4.2 billion), removal of Council Tax (£31.9 billion) and miscellaneous adjustments (£0.6 billion). In addition, HM Treasury (and local authorities) will have flexibility to increase or decrease the tax take in future years by adjusting the 0.48% rate.
HM Treasury
At Autumn Budget 2017, the Government announced further changes, which increased the price at which a property becomes liable to SDLT to £300,000 for first time buyers. This relief means that 80 per cent of first-time buyers will not pay SDLT, and 95 per cent of first time buyers who pay SDLT will benefit from the change. As you may know, the Chancellor of the Exchequer recently announced a temporary increase in the nil rate band of residential SDLT from £125,000 to £500,000. This was effective immediately and runs from 8th July until 31 March 2021.
Fairer Share
Yes, the first-time buyer's SDLT discount is indeed helpful but it does nothing to facilitate young families moving up the property ladder nor does it incentivise older generations to downsize to property sizes more appropriate for their life-style. Stamp duty stops families moving because it taxes at the point of transaction, thereby making the housing market less efficient. Helping people move has huge economic and social benefits, a point repeatedly made by the Chancellor.
Our response to Sir Paul Beresford's review of Fairer Share
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 a review of our policy undertaken by Sir Paul Beresford, Conservative MP for Mole Valley.
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 Paul Beresford’s concerns in detail. We have responded in a Q&A format below:
Sir Paul Beresford MP
Thank you for your campaign email about council tax and the proposal by a lobbying group to impose a new house price tax on homes.
Fairer Share
To be clear, this is not a new tax on homes. The Proportional Property Tax is a replacement for the regressive Council Tax and the punitive Stamp Duty.
Sir Paul Beresford MP
Council tax is a local charge for the use of local services. The current banding system reflects that larger homes make slightly greater use of local services, but intentionally, it is not a poll tax nor a wealth tax.
Fairer Share
Within your constituency of Mole Valley someone living in a modest band A property pays 0.88% of their property value in tax every year. However, 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. We have been inundated with stories from supporters who are struggling to find the money to pay their Council Tax bills. So, on top of the disparity between bands, Council Tax is a rising wealth tax for low and middle-income households.
The Proportional Property Tax is not a wealth 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.
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%.
Sir Paul Beresford MP
For the past decade, the Government has ensured that local taxpayers are able to veto excessive council tax increases in a local referendum. The 2019 manifesto, upon which I stood, re-affirmed support for this democratic check and balance, which has helped ensure that council tax remains lower in real terms than a decade ago.
Fairer Share
Council tax bills have rocketed up in many areas over the past decade. To take one example, Band D council tax in the City of Nottingham has gone up from £1,562 to £2,226 in this time - a rise of 42.5%.
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.
Sir Paul Beresford MP
I would note under the proposals by this lobbying group, many hard-working families and pensioners would see soaring bills, both within local authorities and across the country. In particular: the existing single person discount would be abolished, hitting widows and widowers the hardest. Such a house price tax fails to take into account that single person homes make reduced use of local services.
Fairer Share
Please can you provide your analysis to show that hard-working families and pensioners would see soaring bills from this reform?
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 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.
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. This means that those widows or widowers, to whom you refer, will not be particularly impacted by the change.
You are 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.
Sir Paul Beresford MP
Annual revaluations would mean home improvements would be taxed, punishing people for doing up their home. Under the council tax system, material improvements are only taken into account when the home is sold.
Fairer Share
With a flat tax of 0.48%, this equates to less than 1/200th of any increased value from home improvements. Such a payment would be much less than the 20% VAT rate charged on materials, so a proportional property tax at 0.48% per year is certainly no more of a disincentive to improve one’s home than VAT, which is charged at 20% and is paid upfront.
Do you really think that the Council Tax system takes into account material improvements when the home is sold? Why has a property revaluation in England not been carried out since 1991? This is one of the main reasons for the inequity between constituencies and within constituencies.
Sir Paul Beresford MP
There would be no limit on the increase in taxes. When house prices rise, it would be very easy for a government or council to use that increase to hike the overall tax take by stealth, as bills would be based on house prices.
Fairer Share
The increase in tax take would be determined by a fixed value of an asset, not by stealth. As the rate is only 0.48%, this means that a homeowner would keep 99.52% of any increase in their house price. Therefore, an increase of £100,000 in house value would return £99,520 to the homeowner. This is certainly not an unlimited increase.
Do you feel the same way about Fuel Duty and VAT? They could also be viewed as stealth taxes especially as wages in many parts of the country have struggled to keep up with inflation.
It should be noted that many other jurisdictions around the world use annual or regular valuations to base their annual property taxes. These include the Netherlands, British Columbia, New York City, Ontario, parts of Australia and New Zealand.
Sir Paul Beresford MP
I also note that the Government has stated it does not support such a policy, and has criticised proposals for such house price taxes in a Parliamentary debate.
Fairer Share
Please can you provide the evidence of these criticisms in Parliamentary debate? In fact, our reform has been championed by the Housing Select Committee, and was noted by a Minister in the House of Lords.
Across England around 76% of households would benefit under a proportional property tax, with households paying £435 less property tax a year on average.
There are 78 constituencies where over 99% of households would benefit from moving to a proportional property tax. Many of these are in the north of England and the midlands but there are also plenty of southern seats that would benefit from the change.
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.
In his op-ed piece in the Daily Telegraph, 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.’
Sir Paul Beresford MP
Thank you for making me aware of the campaign; I hope this explains why such an idea is not one I feel able to support.
Fairer Share
That is a pity. Council tax is clearly broken. Everybody in government knows this. The Financial Times editorial board wrote ““Taxation of property is incoherent, notably in the UK: the regressive burden of council tax is proportionately much higher for owners of cheaper properties than more expensive ones. Moreover, valuations have not been updated for England since 1991. Reform is urgent: this should consist of a tax proportional to the property value, regularly updated valuations and the capitalisation of the tax for elderly residents, with the balance paid out of the estate.” As you know, Fairer Share has incorporated all three recommendations – proportionality, regular valuations and capitalisation.
As we have stated here, there is a “policy vacuum” at the heart of levelling up. If the Conservative Party is serious about levelling up, not just paying lip service to it, then PPT should be a no-brainer. Our proposal is ready to go, it is not radical and the cap on the increase of £1,200 per year limits any losses to a sensible and politically palatable amount. The benefits of PPT to most voters are undeniable and by rights it should be at the centre of levelling up agenda. If this is too heavy a lift then I fear this Government may have little to show to its “Blue Wall” by the time of the next election.
The ‘policy vacuum’ at the heart of Levelling Up
This article first appeared in Politics.co.uk on July 28th 2021, written by Fairer Share Founder, Andrew Dixon.
Two years after he first started talking about it, the prime minister’s levelling up agenda is still looking remarkably policy-light.
This week, MPs on the business, energy and industrial strategy committee said that levelling up risks becoming an “everything and nothing policy”. That verdict came after the lack of detail in the recent big speech on the flagship policy prompted Labour to charge Boris Johnson with serving “empty waffle”, while one Conservative MP admitted that levelling up is an ambiguous phrase that “means whatever anyone wants it to mean”.
What’s clear is that, two years after Johnson first started talking about it, there continues to be a policy vacuum at the heart of levelling up.
This might be understandable if there was a shortage of interventions that the prime minister could pick up and run with to achieve a fairer Britain. Yet no such shortage exists. Indeed, one policy that ticks all of the boxes is increasingly being talked about by MPs on both sides of the chamber.
This week, MPs on the housing, communities and local government committee (HCLG) backed an overhaul of council tax, which they rightly called out as “an increasingly regressive tax that penalises those in more deprived areas”. In the place of council tax, the select committee MPs are backing a fairer system that would deliver for voters in the so-called red wall and beyond. “The government should consider options for wider reform of council tax and business rates, including possibly replacing them with a proportional property tax,” their report states.
The MPs’ concern over council tax tallies with research showing that residents of constituencies in the north and Midlands clearly receive the worst deal under the current system. By backing a proportional property tax, the committee’s 11 MPs are voicing their support for a fairer system that should be central to any credible levelling up agenda.
Research shows that across England, around 76% of households would benefit under a proportional property tax set at a flat rate of 0.48% of a property’s value. 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.
The select committee report frames proportional property tax as a long-term option but there is no reason why the policy could not be introduced in the near future. A simple proportional property tax as designed by the Fairer Share campaign would be revenue-neutral, maintaining the amount that the government can put towards our services, while simultaneously leading to lower bills for millions of people. There would also be significant safeguards in place to help the so-called ‘asset rich, cash poor’, such as the option to defer payments at notional interest rates until point of sale.
While opponents of a proportional property tax point to practical issues, such as annual valuations, work done by the International Property Tax Institute shows that there is no technical problem with revaluation. At present, hundreds of jurisdictions use some sort of automated valuation model to aid their property tax systems.
As he searches for policies to anchor the levelling up agenda, the prime minister does not need to look far to see why proportional property tax would do the job better than most. This week’s HCLG committee report comes after the liberal Conservative Bright Blue group also recently backed an annual proportional property tax on the current value of houses. Conservative MP Kevin Holinrake said: “Introducing a proportional tax on property in the UK would be an excellent way for our party to demonstrate our commitment to levelling up and to do something meaningful for the many new constituencies we have won across the country”.
If levelling up is not an everything and nothing policy and is really a serious policy programme, the prime minister could prove it tomorrow by putting proportional property tax at the heart of the agenda. In doing so he would be implementing a policy that would not cost the Exchequer and has been shown to deliver real-world levelling up benefits to households across the country. As Johnson himself might say, he would be advancing a plan that is “oven-ready”.
Andrew Dixon, Chairman & Founder, Fairer Share
Parliamentary Committee recommends Fairer Share to the Government
Great news! This week, the House of Commons Committee for Housing, Communities and Local Government published a list of recommendations to the UK Government calling for Council Tax reform and specifically for the Government to look at replacing Council Tax with our Proportional Property Tax.
The committee, made up of both Conservative and Labour MPs, said Council Tax was becoming increasingly regressive to the detriment of deprived areas. They said that reform was "long overdue".
Committee chair Clive Betts said:
“Council budgets have been stretched for several years and the social care funding crisis is at the heart of financial pressures for many councils.
“Covid-19 has also hit councils hard and, while the government responded to the pandemic with substantial financial support, they now need to come forward with a long-term sustainable way of funding councils and the services they provide.”
Andrew Dixon, Founder of Fairer Share responded to the news, saying:
"It’s great to see our campaign getting into the heart of Westminster. We will keep up the pressure to make sure that the Government ends our terrible property taxes and creates a fairer system for everyone."
The Committee includes MPs from across England:
Clive Betts MP (Sheffield South East)
Bob Blackman MP (Harrow East)
Ian Byrne MP (Liverpool, West Derby)
Brendan Clarke-Smith MP (Bassetlaw)
Florence Eshalomi MP (Vauxhall)
Ben Everitt MP (Milton Keynes North)
Rachel Hopkins MP (Luton South)
Ian Levy MP (Blyth Valley)
Andrew Lewer MP (Northampton South)
Mary Robinson MP (Cheadle)
Mohammad Yasin MP (Bedford)
Helping the red wall doesn’t mean harming the south
This article first appeared in The Times on June 28th 2021, written by the Conservative MP for Carlisle, John Stevenson.
The Chesham & Amersham by-election result has prompted understandable concern in some quarters of the Conservative party. But while the result was a disappointment, I would caution colleagues against leaping to the wrong conclusion. Namely the idea that a focus on red wall seats has to come at the expense of those in the south.
The real story is that if the government wants to deliver on our manifesto pledge of levelling up the country, then something has to be done about property taxes. Our system is broken. Council tax hurts the poorest in society all across the country. Simultaneously stamp duty puts a brake on economic growth by
hindering transactions in the housing market, leading to an inefficient housing stock.
There is no doubt that constituents like mine in Carlisle would benefit from a fairer system. In fact, near enough 100 per cent of my constituents would benefit to the tune of £700 if the government was to scrap council tax and stamp duty and bring in a simple proportional property tax, as proposed by the Fairer Share campaign.
But seats like mine are only part of the picture. The reality of proportional property tax would be lower bills for 76 per cent of households across England,
with beneficiaries in the north and south.
Take North West Cambridgeshire where 91 per cent of households would benefit from a proportional property tax, or Bedford, the commuter town, where 89 per cent would benefit, or the cathedral city Salisbury, where 83 per cent of households would benefit. Even the inner London borough of Barking would see nearly two thirds of its residents directly benefiting from the change.
It is of course true that some wealthy parts of the south of England would see their bills rise under proportional property tax. But many southerners would see
lower bills and those who will have to pay more are predominantly the richest homeowners in the most affluent and valuable areas of the country.
Furthermore, a cap on any increase at the point of implementation of £100 per month and the option to defer payments at notional interest rates until point of sale surely insulates these homeowners from any material concerns and means that everyone who wants to will be able to remain in their present home.
What’s clear is that the current system is not working. For example, my residents who can only afford houses in the lowest band pay 1.3 per cent of their property value in council tax per year. At the same time, the wealthiest band property owners in Brighton pay just 0.1 per cent of their property value per year. This is patently unfair.
A proportional property tax would address this inbuilt unfairness without hiking up bills across the south of England. At the same time, the removal of
stamp duty and the introduction of a proportional property tax would correct broken incentives in the market — encouraging transactions and helping people to move into homes that are most suitable for their needs.
Stamp duty is a poorly-designed tax because it hinders people moving. At the top of the market in particular it is prohibitively expensive, often a cash
payment of 5 per cent to 10 per cent of the value of the property is required.
These payments stop families moving up the market as they need space for their children and disincentivises others from downsizing when their own children
move out to homes of their own or the rental market.
Across the country fewer barriers to downsizing could lead to hundreds of thousands of additional homes being freed up, helping to mitigate some of the
housing supply shortage particularly where there is greater demand, in London and the South East. And it would help young people get on to the housing ladder where it is too expensive for all but a few.
Ultimately, levelling up for one part of the country does not need to come at the expense of another and a proportional property tax would not just be of
enormous benefit to my constituents. It would also mean the end of stamp duty for everyone and lower bills for households across England, from Carlisle to
Cambridgeshire.
John Stevenson is the Member of Parliament for Carlisle.