Since taking office in July 2024, the Labour Government has faced mounting anticipation over how it will tackle the pressing challenges of economic inequality and regional disparities. Reforming the UK’s outdated property tax system offers Labour a pivotal opportunity to deliver on its promise of building a fairer, more inclusive society.
Under the leadership of Prime Minister Keir Starmer, Labour has signalled its intent to prioritize “levelling up” across the country. Angela Rayner, now overseeing the levelling-up brief, has emphasized the need for bold policies to tackle regional inequality and create opportunity for all. Yet, despite these ambitions, Labour has so far distanced itself from wealth taxes, citing economic prudence and a desire to maintain broad-based appeal.
Harry Lambert, writing in the New Statesman, criticizes Labour’s refusal to adopt tax reforms that shift the tax burden from labour to capital and wealth. These reforms could raise substantial revenue, potentially funding green energy initiatives or cutting income taxes for most people, while also addressing wealth inequality and boosting economic growth.
Josh Ryan-Collins, in The Guardian, criticizes Rachel Reeves’ rejection of wealth taxes and her implication that lower taxes on the wealthy will lead to prosperity (trickle-down economics). The article argues that the UK’s tax system incentivizes rentier capitalism, where capital gains are taxed less than income, resulting in a misallocation of capital that stifles growth and productivity. It contends that taxing wealth and capital gains while increasing public spending can help control inflation and promote progressive deflation, aligning with recommendations from organizations like the OECD, IMF, and the Institute for Fiscal Studies.
In the context of this ongoing debate surrounding taxation policies in the UK, if outright wealth taxes are ruled out, it is crucial to at least reform more regressive and punitive property taxes, notably council tax and stamp duty. Indeed, The Financial Times’ Editorial Board argues that council tax, stamp duty, and business rates hinder productivity and economic growth. The board proposes replacing council tax with an annual proportional property value tax based on updated valuations, gradually reducing stamp duty, and reforming business rates. These changes aim to address inequality and promote growth.
Property tax reform, as outlined by The FT, Lambert and Ryan-Collins, can play a pivotal role in rectifying the regressive nature of the current tax system. Council tax, based on outdated property values, places a disproportionate burden on households in less affluent regions, exacerbating regional inequality. By pledging to replace council tax with an annual proportional property value tax, the Labour Party would demonstrate its dedication to levelling the playing field and ensuring that taxation is fair and equitable.
Furthermore, property tax reform would underscore the Labour Party’s commitment to fiscal responsibility. While advocating for tax reforms, Labour acknowledges the importance of maintaining local government revenue. By carefully phasing in changes, introducing caps and reliefs for vulnerable households, and deferring payments until property sale or death, the party can strike a balance between fairness and financial stability. This balanced approach resonates with voters who value responsible economic management.
Importantly, property tax reform is a policy that can capture the attention and support of a broad spectrum of voters. Proportional property taxes are commonplace in many countries indicating their feasibility and acceptance among the public. The proposal to cut taxes for three in four people while raising necessary revenue can be an attractive proposition for voters and help deliver a persuasive campaign platform.
In conclusion, while wealth taxes may be off the table, reforming property taxes—specifically council tax and stamp duty—presents a clear opportunity for the Labour Party to demonstrate its commitment to addressing regional inequality, ensuring fiscal responsibility, and appealing to voters across the political spectrum. By championing policies that promote economic fairness and growth, Labour can distinguish itself and present a bold, compelling vision for a more equitable tax system and a fairer UK society.
By Andrew Dixon OBE, Chairman of Fairer Share