Convened by the IPPR, a roundtable discussion entitled “Addressing the cost of living crisis through property tax reform” was held with an esteemed group of politicians, academics, economists and campaigners.

The event was attended by Shadow Financial Secretary, James Murray MP, who is currently working on the Labour Party manifesto for the next election. The discussion covered numerous elements of the cost of living crisis as well as the role that property tax reform can play in alleviating the challenges that households face.

The message was clear – Stamp Duty and Council Tax are in much need of reform.

Growth

Senior Research Fellow at the University of Oxford, John Muellbauer, made several contributions based upon his research for the OECD on the role property taxes have had on stagnating GDP in the UK. He noted that high taxes on moving and low taxes on homeownership combine to force too many people to live far from their workplaces or from their relatives. Stamp Duty is the key cause of this effect. High levels of Stamp Duty mean that few homes come on the market at any one time, restricting choice. Combined with the high cost of transacting, many people are forced to live far from their most suitable locations. The time wasted on travelling results in greater tiredness and fewer waking hours to put towards work and leisure. This has contributed to Britain having the highest commuting times in Europe. Downwind of these problems, Muellbauer noted, you end up with lower productivity resulting in lower levels of growth.

Professor Muellbauer also linked these problems to the perennial issue of climate change. Our housing stock is rife with under-occupation helped by huge disincentives to move in the form of Stamp Duty. By having a more efficient use of the housing stock there is a reduced need to heat unused rooms, and also the need for new construction is marginally reduced since the overall available stock will increase, constituting an increase in effective supply. Moreover, in the long-run this will help the cost of living by reducing carbon emissions, and thus preventing carbon related cost of living volatility.

Sam Robinson, Senior Research Fellow at Bright Blue, added to this point, noting that a proportional property tax could feasibly take carbon emissions into account, for example by tying the rate of the PPT to a home’s EPC rating.

Moreover, it was noted by many participants, such as Shreya Nanda, Chief Economist at the Social Market Foundation, that the current system provides little scope to improve land. This means that developed land, in addition to developable land due to regulatory constraints, is in a massive shortage. As such, average house prices are over three times more expensive than their cost of construction. This is worsened by the fact that when infrastructure is developed, increasing the desirability for nearby households, the public purse is not at all reimbursed for this. For example, a £3.5 billion investment in the Jubilee Line Extension, increased nearby property values by £13.5 billion. If just a small percentage of this had been taxed, then these improvements, that help to grow productivity, would fund themselves. However, it was discussed that since property valuations for the purpose of council taxation have not been updated since 1991, then such improvements will not be recognised in the tax bill, thus making investments in infrastructure harder to finance.

Unfairness

Whilst there were some disagreements in the specific type of tax that should replace our current system, there was almost universal agreement that change is needed.

George Dibb, Head of the Centre for Economic Justice at IPPR, set out how IPPR research has previously shown the unfairness of the current tax system both in terms of wealth inequality but also regional inequality. Council tax is based on 30-year-old property valuations, varies widely around the country, and is capped at relatively low property values, meaning that a multi-million-pound property in the South-East of England can attract the same tax bill as a normal family home elsewhere. Reform is clearly overdue.

Liz Emerson, CEO of the Intergenerational Foundation, commented that their preferred policy is to levy capital gains tax on the sale of primary residences, as this would feed back intergenerationally unfair gains made by wealthier older generations through the unrestrained rise in house prices. Proceeds would go to the public purse in order, they hope, to be spent on improving the prospects of the young and future generations, whether that be through reducing the cost of childcare, investing in the green transition, or removing the onerous burden of student debt, which from September 2023 will follow the young for 40 years.

Andrew Dixon, founder of Fairer Share, explained that their analysis showed 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. He noted that their analysis showed that 76% of households would be better off by moving to this system. Included in the Fairer Share proposals are the elimination of single person and second home discounts, and exemptions on undeveloped land. Deferral of tax payments for those with low cash incomes are a key element in their proposals.

Sara Hall, Deputy Director at Tax Justice UK, explained that property makes up one of the biggest portions of all UK wealth but that we have a dysfunctional approach to taxing it. Under council tax, people living in lower value housing pay more in tax as a proportion of the value of their homes than people living in multi-million pound mansions. There are also big variations between different councils and regions of the country.

She went on to say that if this was replaced with a proportional property tax, paid by the homeowner, a large majority of people would be better off. Sara admitted that the other tax on residential property – stamp duty – is progressive in that the wealthy pay more. However, it’s economically inefficient as it makes it unnecessarily expensive to downsize or move house. Replacing these two taxes with a proportional property tax would be fairer and is why Tax Justice UK fully supports the proposal put forward by the Fairer Share campaign.

Vote Winner

Jacky Peacock, Head of Policy at Advice4Renters, argued that a land value tax would be her preference, but identified proportional property taxes, like that advocated by Fairer Share, as a welcome alternative that would generate more political support. This argument was joined by several of the attendees, such as Sam Robinson, Senior Research Fellow at Bright Blue, who explained that proportional property taxes would rebalance the regressivity of the current system and put more money in the pockets of those from modest backgrounds and areas. To all parties the electoral benefits of proportional property taxes constitutes a key selling point. It was mentioned that JL Partner’s MRP Polling that found that if Labour were to introduce a PPT, then they could gain as many as 52 additional seats with numerous gains in Red Wall seats and Scotland.

Final thoughts

What was clear from the discussion, despite frank disagreement over policy specifics, experts from all sides of the aisle were unanimous that property taxation in the UK, through Council Tax and Stamp Duty, is not fit for purpose and thus in dire need of reform. Whilst specific preferences of optimal improvements varied, many agreed that a Proportional Property Tax would constitute a significant improvement compared to the current system that would alleviate the cost of living crisis, assist the levelling up effort, help incentivise infrastructure investments and help make house prices more affordable.

The key question is whether these recommendations will be part of the Labour Party manifesto going into the next general election?