Fairer Share welcomes a detailed new analysis of our Proportional Property Tax proposal by the independent Property Tax Lab. This is exactly the kind of constructive scrutiny the debate around property tax reform needs.
Property Tax Lab has tested the Fairer Share proposal using its own residential property model, based on more than 900,000 property valuations and weighted to reflect England’s housing stock. Its conclusion is encouraging: 83% of dwellings in England would pay less under a Proportional Property Tax set at 0.48% than they currently pay in Council Tax.
Although its methodology is not directly comparable with Fairer Share’s estimate that 77% of households would benefit, Property Tax Lab concludes that our central claim “holds up; if anything it is conservative”.
The analysis also vividly illustrates the fundamental unfairness of Council Tax. Property Tax Lab estimates that 98% of homes in the North East, 95% in the North West, 96% in Yorkshire and the Humber and 97% in the East Midlands would pay less under PPT.
At local authority level, it estimates that 100% of homes in Hartlepool and Middlesbrough would pay less, with average annual savings of £1,353 and £1,332 respectively.
The underlying reason is straightforward. Council Tax bills are still determined by property values from 1991 and bear increasingly little relationship to what homes are worth today. Property Tax Lab estimates that Band A households pay Council Tax equivalent to an average 1.08% of their property’s value each year, compared with just 0.13% for Band H.
The importance of abolishing Stamp Duty
Property Tax Lab also finds particularly strong evidence for the economic case for abolishing Stamp Duty on primary residences. This is the other central element of Fairer Share’s proposal.
Its modelling estimates that abolition could increase housing transactions by around 8.8%, equivalent to approximately 76,000 additional sales a year, while removing an estimated £804m of economic deadweight loss annually and enabling around 16,000 additional long-distance moves.
This is fundamental to the Fairer Share proposition. Property tax reform should not simply redistribute an existing tax burden. It should help create a better-functioning housing market by making it easier for people to move for work, families to find appropriate homes and older homeowners to downsize. That is why Fairer Share has consistently argued that Council Tax and Stamp Duty should be considered together.
Constructive challenges
Property Tax Lab also raises important questions about the detailed design of PPT.
It argues that the original 0.48% rate, calculated using 2019 revenues and property values, should be updated to reflect today’s tax base and Council Tax revenues.
Its modelling suggests a revenue-neutral rate would now be higher, although it also acknowledges that its calculations exclude Fairer Share’s proposed 0.96% surcharge on second homes, empty homes and properties owned by non-residents, which would raise additional revenue.
This is a useful contribution. Any government implementing reform would clearly need to set the rate using the latest property values, revenues and policy assumptions.
Property Tax Lab also identifies a potential problem with Fairer Share’s proposed transitional protection, which limits increases for existing homeowners to £1,200 a year until the property is sold.
It argues that removing this protection on sale could create an incentive for some owners of high-value properties not to move, partially offsetting the mobility benefits of abolishing Stamp Duty. It suggests considering a time-limited transition instead, under which households gradually move towards their full PPT liability irrespective of whether they sell.
We think this is an interesting proposal that deserves further modelling. The objective should be to protect existing homeowners from sudden increases without creating unnecessary barriers to moving.
The analysis also raises legitimate questions about deferral, the economic incidence of transferring legal liability from tenants to owners, revenue stability and the administration of regular property valuations.
None is an argument against reform. They are questions that need to be answered in designing it. Indeed, Property Tax Lab itself concludes that its reservations are “about design, not direction” and that none of the issues it identifies is fatal.
Modern valuation is achievable
Another important conclusion concerns valuation. One of the most frequent objections to property tax reform is that regularly valuing around 25 million homes would simply be too difficult.
Property Tax Lab reaches a different conclusion. It says annual automated valuation of England’s housing stock is “within the current state of the art”, while rightly highlighting the need for investment, transparency and an effective appeals process.
That is significant. We should no longer be asking whether it is technically possible to establish what homes are worth in the 21st century. The question is how we build a transparent and trusted system for doing it.
Exactly why we need an independent review
Perhaps the most important conclusion from this work is that fundamental property tax reform is both necessary and achievable, but getting the detail right matters.
That is exactly why Fairer Share is calling for a full, independent review of Council Tax and residential Stamp Duty. We need government, economists, property tax experts, the Valuation Office Agency, local government, housing specialists and taxpayer representatives around the same table.
An independent review should examine the appropriate rate, valuation methodology, transitional arrangements, deferral, owner liability, revenue allocation and protections for those unable to pay.
It should also properly assess the wider economic benefits of abolishing Stamp Duty: greater mobility, more downsizing, better use of Britain’s housing stock and improved labour-market mobility.
Fairer Share has put forward a detailed proposal for reform. We do not claim that every implementation detail should be immune from challenge or improvement.
Quite the opposite.
After 35 years of Council Tax based on 1991 property values, Britain needs a serious, evidence-led debate about what should replace it. Independent analysis such as this helps us have that debate.
We thank Property Tax Lab for such a detailed and constructive contribution.