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

by The Fairer Share Team

Daily Telegraph | Overhaul property tax to save 19 million households £435 per year, MPs urge Chancellor

by The Fairer Share Team

Think tank endorses Proportional Property Tax in paper to the Chancellor

The think tank Radix has endorsed the Proportional Property Tax in a cross-party submission to the Chancellor. Below is the summary of the paper and its authors. Read the full paper: Modernising Property Taxes.

Modernising property taxes – including by abolishing Council Tax and Stamp Duty and replacing them with a Proportional Property Tax (PPT) – will be key to meeting the UK’s debts post-Covid and should be announced in next month’s budget. 

These are amongst the core proposals in a cross-party submission to the Chancellor, entitled Modernising Property Taxes, produced in partnership with leading law firm Shoosmiths LLP.   “Out of date, regressive and unfair” are amongst the ways that the series of essays by senior politicians, businesspeople and academics describe both Council Tax and Stamp Duty, while accusing politicians of previously being “too scared” to modernise them.

“That should all change, however,” argues Radix Chief, Ben Rich, pointing out that “Sooner or later, we are going to have to address the debts incurred during the pandemic.  The question is against what tax base?  Property is hard to hide, so it is an excellent source of income for governments, so long as it is taxed fairly and transparently.

“That’s why Radix and many of the contributors to this paper welcome the recommendation in his essay by Andrew Dixon (Founder of the Fairer Share Campaign) for a Proportional Property Tax to replace Council Tax. 

“It is also why we support the recommendation of Michael Johnson (policy adviser on pensions and taxation) to scrap Principal Private Residence relief and make Property Capital Gains Tax payable on all residential property sales, using the new revenue to abolish Inheritance Tax on main properties and Stamp Duty on the purchase of a main home.

“And it is why we welcome the analysis by businessman and academic, Andrew Purves, of taxation in Singapore and Hong Kong, which argues that fairer property taxes could replace a substantial part of the income from direct taxation in the UK.”

In his essay entitled “The Case for Reform”, Conservative MP and Housing Select Committee Member, Kevin Hollinrake, argues in favour of PPT, while the author of Labour’s Land for the Many Report, Beth Stratford, uses hers to call for a series of measures, including a 15% tax on the price of land or property purchased by companies owned in secret jurisdictions.

Rachel Kelly, Assistant Director at the British Property Federation, proposes to bring VAT on repairs to existing residential properties into line with that on new homes.  Investor Hugh McNeill suggests that property taxes be redesigned to take into account that property income streams will already be claimed by other parties.

Vaqas Farooq, a leading Real Estate and Regeneration lawyer at Shoosmiths LLP calls for a broad coalition of housebuilders and institutional investors, as well as activists, charities, media and local governments, to press the Government to seize this opportunity for reform.

Catherine Williams, the Head of Living Sector at Shoosmiths LLP, says:

“Covid-19 has hit our communities hard, making the case for property tax reform stronger than ever. The SDLT holiday has been a welcome boost to the housing industry, but the resulting uptick in purchases, and expected drop off when the holiday ends, is a stark reminder of just how much of an inhibitor Stamp Duty is to people moving home.

“A ‘root and branch’ review of property taxes could tip the scales of supply and demand and make homes more affordable for more people, driving government revenues in other ways. This debate is well overdue and urgent in the shadow of the deepest recession in living memory. Shoosmiths is pleased to have partnered with Radix to encourage discussion and to help us all find a better, fairer way forward.”

Radix is calling on Chancellor, Rishi Sunak, to signal his intention in next month’s budget to modernise property taxes as the basis of his proclaimed strategy to build back better.

Read Modernising Property Taxes.

by The Fairer Share Team

Daily Telegraph | Stamp duty should be scrapped – and the whole property system reformed

Our founder, Andrew Dixon, welcomed this excellent contribution to the debate. “It is exciting to see The Daily Telegraph highlight so many of the problems with existing residential property taxes. Wonderful to see the references to Sir Winston Churchill and Sir James Mirrlees. Russell mentions the flawed nature of stamp duty – a tax on how much something changes hands. And he goes on to point out the unfairness of council tax. Russell writes about the benefits of a proportional property tax and challenges the Government to be bold.”

The following article originally appeared in Daily Telegraph on January 19th, authored by Economics Editor, Russell Lynch.

With a big majority and Brexit secured, the Government has no excuses for being timid.

In 1909, Winston Churchill – then a Liberal serving in Herbert Asquith’s Cabinet – had this to say on the subject of property and land: "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."

I’m not sure if the Prime Minister, as a biographer of Churchill, came across the above extract, quoted approvingly in Nobel laureate Sir James Mirrlees’ comprehensive review of the UK tax system back in 2011. But perhaps he should take heed of the sentiment as the Government begins to plot its way out of the fiscal mire left by Covid-19.

Back then, Sir James pointed out the “mess” of our economically inefficient system of property taxes which ignore land values, stifle the number of transactions and fall disproportionately hard on the poorest. The scandal is that nearly a decade on from his study, hardly a thing has changed. Political calculation and the vocal complaints of the losers has always sapped the courage of ministers, meaning that perpetuating the absurdity is always the path of least resistance.

Take stamp duty. Communities Secretary Robert Jenrick is promising new laws to protect statues from woke militias but stamp duty – a supposedly temporary effort dating back to 1694 to fund a war with France – is one historical taxation edifice which needs toppling in quick time. After all,  any tax levied on how much something changes hands, rather than its value, is by definition flawed. As countless studies have shown, it saps mobility in the housing market, particularly at a local level where moves are less likely to be driven by longer-term factors like a new job.

LSE economist Christian Hilber estimated in 2018 that the old “slab” system of stamp duty, where a £250,000 house bore 3pc duty on the entire value compared to 1pc at £249,000, cost almost as much in lost transactions as it made in revenues for the Treasury. While that bunching effect is now gone, the drag – or the lost “welfare” in the economic jargon – still remains due to the impact of the mismatch in the market and forgone transactions, he says.
The Telegraph is campaigning for the current stamp duty holiday, which expires on March 31, to be extended permanently. Better still would be to scrap the damn thing altogether, for the reasons above. The inefficiency of the tax means that the cost won’t be as much as the £11bn in pre-Covid revenues it raked in, although from a “levelling up” perspective selling a tax cut disproportionately benefiting buyers in London and the South-East may be difficult.

One thing is certain though: stamp duty can’t be considered in isolation. A proper approach would see a comprehensive review of all property taxes announced in March’s Budget, with a pledge that any agreed changes would be phased in over several years to ward off the threat of short-term market dislocation.

Top of the list would be replacing the manifest unfairness of a council tax based on 1991 property valuations. This admittedly could be expensive news for a lot of people, including myself. But how long are we going to maintain the absurdity of charging people on the basis of prices 30 years ago? What happens when it gets to 50, or even 100 years? Surely we have to somehow get out of this ridiculous taxation corner we’ve painted ourselves into by ducking regular revaluations.  Hence he needs to consider other options.

A housing services tax of the type proposed by Mirrlees would see renters or owner-occupiers pay a small annual share of the rental value of their properties, with 0.6pc seen as revenue-neutral for replacing council tax. This is not a “mansion tax” or anything like it: it is effectively how much you pay for “consuming” the property you are living in. There would be no reductions for single occupants or empty homes to extend the inefficiencies in the market, for example.

Admittedly the potential losers will include older, retired owner occupiers in larger homes, which is a constituency few governments of any colour like to upset. But it would address the unfairness baked into the current system where those at the top are paying proportionally less. In fact, an HST would look a lot more like one of the predecessors of council tax, domestic rates, which were also charged as a percentage of estimated rental values.  If the Chancellor wanted to scrap stamp duty on housing transactions altogether, the tax could potentially be set at a higher level to make up the revenue.

If Sunak wanted to go further still, his review might also look at options such as a land value tax, targeting the land which a property sits on. Such a move, based on the rental potential of the land, would capture the unearned “betterment” that landlords have accrued from their surroundings, to take us back to Churchill.

Countless economists from Adam Smith onwards have argued for one and even Milton Friedman – never a fan of tax – said it was the “least bad option”. The reason that they aren’t more common, however, are the practical difficulties of valuing the land separately from the buildings, and the potential for legal challenge that it brings, while the politics also gets in the way again.

Even allowing for Covid, the Government has yet to lay down a real marker on tax despite symbolic gestures such as scrapping the tampon tax when we left the EU’s orbit. Certainly the current crop of headlines about a vindictive raid on homeowners won’t do anything to bolster the Chancellor’s nerves, especially after the Government gave Labour a chasing over its “garden tax” in the build-up to the 2019 election.

Asquith, it has to be said, dropped the land tax that Churchill spoke in support of a year later after opposition from landowners in the House of Lords. But with a majority of 80, the Government has the chance to be bold, and to take some steps towards sorting out a shambles that has lingered for decades. The real question is whether ministers have the nerve to do it.

© Russell Lynch / Telegraph Media Group Limited 2021

by The Fairer Share Team