This article first appeared in Conservative Home on the 23rd September.
The battle against the Coronavirus is far from over, but as we begin to look at how to achieve what the Prime Minister called “building back better”, the time is right to think about what we as Conservatives believe “better” really means.
For me that must include creating a fairer society. By hitting the most vulnerable groups hardest, Covid-19 has sharply exposed the profound inequalities that exist in Britain. These are divides that a modern Conservative Party must be committed to eradicating. Now is the moment to do so, and as a fundamental part of that we have to look at how we tax people.
While it might not be the first thing that comes to mind, replacing council tax and stamp duty should be part of the roadmap for a fairer Britain. It’s a fundamental principle of taxation that taxes should be simple, transparent and fair, yet these taxes achieve none of those things.
Council tax is based on property values that are thirty years out of date, taxes low-value homes at a much higher rate than high-value properties and pushes millions of households into debt. It is emblematic of a broken system that is no longer fit for purpose.
Ultimately these taxes are unfair, complicated and block aspiration. Unfair because the poorest find themselves hit hardest. Complicated because they are difficult to understand and command an intricate web of bureaucracy to administer. And they hinder aspiration by taxing property transactions and discouraging people from moving home.
Since being elected to Thirsk and Malton in 2015, and as Chair of the APPG on poverty, I have seen first-hand how council tax inflicts immense suffering on some of our most vulnerable citizens while failing to fulfil the most basic tasks of a functioning property tax.
It has a devastating impact on low-income households, who if they are unable to pay are aggressively pursued by local authorities and debt collection authorities – and in some cases even imprisoned. According to Citizens Advice, 40 per cent of problem debt can be apportioned to council tax, up from 21 per cent in 2011. The Covid-19 crisis has only exacerbated the situation, with an extra £700 million in council tax debt accrued by 800,000 struggling UK households since March.
As an officer of the APPG on Land Value Capture and a former member of Parliament’s Housing, Communities and Local Government (HCLG) Select Committee, I’ve become depressingly familiar with council tax’s many structural flaws. Chief among these is its failure to keep up with the substantial increases in property values that have taken place in recent decades, particularly in London and the South East.
This has deprived the Treasury of crucial tax revenues. While it is right that property owners are able to enjoy the fruits of their investment, it is only fair that in return they are taxed on the actual – rather than 1991 – valuations of their homes.
I have come to accept that council tax is in need of replacement – the problems will not be solved simply by adding one or two more property bands. I was therefore delighted to discover that a new grassroots campaign, Fairer Share, has put forward credible and costed proposals to do just that. It proposes replacing council tax and stamp duty with a proportional property tax (PPT) which would tax all homes at exactly the same rate based on up-to-date property values.
These proposals have two key merits in comparison to council tax: they are fairer and they are simpler. By taxing homeowners on current property values, they would ensure that wealthy homeowners pay an amount of tax that actually reflects the value of their homes while providing a much-needed tax cut to millions of low- and middle-income households.
This would give a real boost to the UK’s regions, the majority of which are hugely disadvantaged by the current system. This is in stark contrast to the status quo, under which a person living in a property worth £100,000 pays around five times more tax as a share of property value than someone living in a property worth £1 million – the equivalent of charging more VAT on a Ford than on a Ferrari.
In place of the administrative challenge of council tax, in which properties are taxed through a confusing and distorting system of bands and exemptions, the PPT would apply a single rate of tax – 0.48 per cent of property value – to all homes. Owners rather than tenants would be responsible for the tax, removing over 8.7 million households from property tax altogether and saving councils an annual £400 million in administrative costs.
To incentivise more efficient usage of existing property, a surcharge on second, empty and offshore-owned homes would be introduced, as well as on plots of land that received council planning permission yet have been left vacant by developers. The policy is revenue neutral – raising the same amount of money for the Treasury as the scrapped taxes currently do.
To maintain the important democratic link between local expenditure and local taxation, Fairer Share recommends that the 0.48 per cent rate should consist of two components. A fixed national rate (0.32 per cent) which would go to central government for redistribution and an initial floating local rate (0.16 per cent) which would go straight 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.
And importantly, this approach includes the complete abolition of stamp duty land tax (SDLT) on owner-occupied residential property. By taxing properties when they change hands, stamp duty discourages homeowners from moving – such as a young household looking to buy a family home or an older couple looking to downsize – and prevents the efficient use of our existing supply of housing. This also has wider economic consequences when, for example, it leads to people turning down job opportunities outside of their area due to the cost of moving home.
The Government has already acknowledged the harm stamp duty causes by introducing numerous exemptions from the tax, including most recently a temporary holiday on all purchases up to £500,000 announced last month. With the UK likely facing an extended economic downturn, the Chancellor should now take further action to support the housing market by fully abolishing stamp duty on owner-occupied property.
While replacing taxes as fundamental as council tax and stamp duty – responsible for raising £50 billion annually - is no walk in the park, I firmly believe it is the right thing to do. The current system of council tax and stamp duty is simply unfair and inefficient.
Local authority finances have been hit hard recently. Replacing these taxes with a better system will put them on a stronger foundation for the future. The PPT is simpler and easier to operate, and revaluations can be carried out regularly, quickly and easily using the latest technology and on a desktop basis.
The Fairer Share campaign has provided us with an excellent blueprint for reform. I urge the Chancellor to take its proposals seriously, starting by announcing a fundamental review of council tax at this year’s Autumn Budget. This would mirror the Treasury’s ongoing review of business rates, the other half of our dysfunctional property tax system.
While it would take time to get the details right, introducing a proportional tax on property in the UK would be an excellent way for our party to demonstrate our commitment to “levelling up” and to do something meaningful for the many new constituencies we have won across the country.
I urge anyone interested in Fairer Share’s proposals to visit their website here or get in touch with me, and to share this article and the wider campaign with their networks. I will also be hosting a live webinar and Q&A with the Fairer Share team in the coming weeks – details will be posted on my website in due course.
Kevin Hollinrake is MP for Thirsk and Malton.