In March we received the following letter from Jesse Norman MP who has the important role of Financial Secretary to the Treasury. The letter outlines the Government’s view of our campaign. To see our response to the points raised in the letter, click here.
Dear Kevin,
Thank you for sending the briefing from Fairer Share in January on replacing Council Tax and Stamp Duty Land Tax (SDLT) with a Proportional Property Tax. As I said when we spoke, I thought it would be helpful to send you a written response to the proposal.
The data provided in the briefing by Fairer Share which you forwarded gives a very useful insight into the thinking behind the proposed new package, and any serious proposal that purports to reduce tax for the majority of people and improve economic efficiency while remaining equitable and revenue neutral overall is of obvious potential interest.
However, the proposal would involve a radical overhaul in existing tax arrangements, and inevitably this would bring disadvantages as well as advantages. Despite its limitations, the current system has evolved over time. It is familiar, well-understood and factored into people’s planning. Thus, as well as expected costs and benefits, any radical change would almost certainly involve unintended consequences, some negative and potentially serious.
All these things are matters of potential concern. For the sake of clarity, I set out some more specific thoughts on these issues below.
First of all, the briefing acknowledges that removing Council Tax and SDLT and replacing them with a proportional property tax will raise annual taxes for many households. Even with the proposed cap, it is important to note that this would risk being perceived publicly similarly to a ‘mansion tax’, a significant and unanticipated increase in bills for families and pensioners who have saved and improved their homes.
On the policy design itself, Council Tax is designed, as you will be aware, to help pay for the cost of local services. These services are used by everyone, including those that rent a property, and the fairness of relieving renters from this tax should be considered. There is also an obvious concern that relieving every household that rents its home from paying this tax, and placing the liability on the property owner, would simply lead to landlords increasing rent to compensate for the tax rise. Reliefs and exemptions already exist for those who are struggling to pay a Council Tax bill.
Turning to the proposal to replace SDLT, SDLT has been designed as a proportionate tax, which is paid by people who can afford to purchase a property. Those who can afford to
purchase higher value properties pay more, and purchases of additional properties incur higher rates, as will purchases by non-UK residents from 1 April 2021. Furthermore, the Government has relieved first-time buyers who purchase a property of £500,000 or less from paying SDLT on the first £300,000 of the property’s value.
In 2019-20, residential SDLT raised £8.4bn, which is rather more than the £4.2bn suggested in the briefing. Despite the significant revenue raised, 34% of transactions did not involve payment of any SDLT at all because they fell under the starting threshold or a first-time buyer. Any government would need to consider very carefully the impact of replacing such a secure tax.
Finally, in relation to the delivery of a Proportional Property Tax and the necessity for frequent revaluations of properties, I understand your concern about the current system of basing bills on 1991 values. By way of context, it is worth pointing out that a full revaluation of every property in the UK would be expensive to undertake, and many final values reached would be controversial. It would involve a huge upheaval, and would also risks accusations of being unfair or inconsistent as a result of in-year or regional disparities in the property market.
For these reasons, the Government has no plans to introduce a Proportional Property Tax. But despite these concerns, I and my colleagues in the Treasury remain interested in the work of the PPT campaign, and I am very grateful to Fairer Share and to you for sharing this proposal. As you know, the Government keeps all aspects of the tax system under review, and we warmly welcome serious and constructive contributions from outside organisations and campaigning groups.
As ever,
RT HON JESSE NORMAN MP