The article by Kevin Hollinrake, MP for Thirsk and Malton, first appeared in the Daily Telegraph on 11/12/2020. For the original article, please click here.

 

As the Prime Minister looks to double down on his plans to level up the country, one of the most visible ways he could help put more money into people’s pockets – especially those struggling to get by – is by reforming the outdated way property is taxed.

The current system is quite simply not fit for purpose. Take council tax. Every household in England – renters and owners alike – pays this annual fee to help fund important local services, from rubbish collection to maintaining parks and public libraries. No-one disputes the purpose of the tax. Yet, according to new polling out today, council tax is the most unpopular tax in the country.

This is largely because the amount of council tax households pay does not in any way reflect the current price of their home. The tax is calculated on a system set up in 1991, nearly 30 years ago. This outdated tax therefore has a disproportionately higher impact on younger and poorer people who tend to live in low value homes. A person living in a property worth £100,000 may pay six times as much tax, as a proportion of their home’s value, compared to someone living in a £1 million property.

Many low-income households who cannot afford to pay are aggressively pursued by local council and debt collection agencies. According to Citizens Advice, 40 per cent of problem debt can be apportioned to council tax. Covid-19 has only made the problem worse with an extra £700 million in council tax debt accrued by 800,000 struggling households since March. The inability of people to pay council tax is contributing to the perilous state of local government finances. According to statistics published by the Ministry for Housing, Communities and Local Government, households in England collectively owed more than £3.5 billion in council tax. Over the past five years there has been over a 30 per cent increase in overall council tax debt.

Stamp duty is another property tax which is an attack on aspiration and ownership. By taxing property transactions, stamp duty discourages homeowners from moving – be it an older couple downsizing or a growing family upsizing – that would lead to more efficient use of the country’s housing stock. Figures published earlier this year by the campaign group, Homes for Later Living, show that over 3 million people over 65 would like to move home but don’t feel they are able to. The fall in transactions ultimately results in fewer new homes being built because market signals, to which housebuilders respond, are distorted.

My friend, the Chancellor, has implicitly acknowledged the economic harm inflicted by stamp duty by cutting the tax where it is seen to be most burdensome. In addition to the tax-free threshold for first-time buyers, in response to the downturn caused by the pandemic Rishi Sunak announced the exemption from stamp duty of all residential property transactions worth up to £500,000 until April 2021. Given the ongoing impact of Covid-19 on the economy and the long recovery that is likely to follow, returning stamp duty to its pre-crisis levels next April would be an unnecessary and unaffordable act of political and economic self-harm.

Business rates is yet another property tax which hampers investment. It is one of the biggest contributors to the death of high streets up and down the UK. And it has an impact on some of those places most in need of levelling up. Seventy-five per cent of constituencies with the highest rates burden are located in the North and the Midlands. This is because the tax rate does not mirror economic performance, so for areas facing economic challenges the burden is much higher. The Government has recognised this and taken bold action by publishing a fundamental review of business rates and providing a business rates holiday for retail, hospitality and leisure during the Covid pandemic. This has been welcome but long-term and sustainable reform is vital.

Council tax, stamp duty and business rates are just three examples of an out-of-date system which is in desperate need of reform. This is why I am forming the Property Research Group. Together with colleagues from right across the country, we will be putting forward proposals to design a fairer and more efficient property tax system that works for all.

Kevin Hollinrake MP is Chair of the Property Research Group.