This article first appeared on Bright Blue’s website, as the winner of the 2021 Tamworth Prize, which this year called for entries on how the Government could revive ‘left-behind’ areas.
When William IV appointed Sir Robert Peel as Prime Minister against the expressed will of the electorate, Peel was forced to prove that his brand of Toryism was in the electorate’s best interests. Boris Johnson finds himself in a very similar position today. Through the electoral benefits of Brexit, the Conservatives have found themselves controlling large swathes of the north – if he’s to stay in Government he must finally take regional inequality seriously – levelling up is the Government’s attempt to do exactly that.
New research into cash benefits has found that the best way to increase someone’s welfare is often to put more money into their pockets. A literature review conducted by the economist Ioana Marinescu found that unconditional cash transfers consistently are found to improve health and educational outcomes, and decrease criminality and drug & alcohol use. Moreover, a recent randomised control trial has found that these schemes can even increase the incentive to work. However, giving people direct payments is not the only way to increase the amount of money in people’s pockets. An easier way is to finally fix council tax.
The way council tax is currently calculated really makes no sense. It is based upon property valuations that are now 30 years old making it extremely regressive. This is because wealthier regions have seen higher levels of house price inflation than less well-off regions. The effect is that those in London pay council tax based on massive undervaluations and those in the north are largely paying based on overvaluations. To make things worse the rates are set locally forcing poorer authorities with higher welfare bills to set higher rates than wealthier ones. Consequently, the effective tax rate in the north east is now 3.5x larger than it is in London. Given this it is no wonder that over 3.5 Million people are currently behind on their council tax bills.
By fixing the council tax system, we can lessen the burden put on the areas that need assistance by putting more cash in hands and increasing their quality of life. The best way to do this is the proportional property tax. This, as advocated by Fairer Share, would put a 0.48% tax on current property values. As well as evening up the divide caused by the out of date valuations we currently use, this move would also be broadly progressive and result in cash savings each year for 76% of households nationwide – the average household saving as much as £453 per annum.
The most important benefits of this policy will be seen in precisely the areas the Government are targeting with their levelling up agenda. Across the 44 Red Wall seats that the Conservatives won in 2019, 97% of households would be better off with the average gaining £660 every year as a result of this change. Furthermore this wouldn’t just be a bribe to Conservative voters. Evidence from the Resolution Foundation indicates that it is the young who would benefit most from this reform – people who are unlikely to vote Conservative.
Thus, the Conservatives should introduce the proportional property tax not just because it would win them votes, but also because it’s the right thing to do.
Moreover, it will also help level up another group that suffers disproportionately under the current system. More than a fifth of young people currently live in overcrowded or concealed housing – and the tax system supports this. Those who live in under crowded conditions with multiple unused bedrooms currently have little incentive to downsize and so that stock is not made available. What PPT would do is incentivise those living in houses larger than they require to sell and purchase somewhere smaller to reduce their tax bill. Inadvertently this decision would increase the supply, and thus lower the cost, of those larger houses allowing more young people to live in homes appropriate for their needs.
It is a standard Conservative principle that the individual knows best when it comes to spending their own money – and modern economic evidence supports this. If we want to level up forgotten regions it cannot be done effectively through central state planning as this will only end up with bureaucracy taking over and inefficiencies ridding the project of its potential to create Adam Smith’s dream of universal opulence.
Like Peel abandoned Wellingtonite traditional Toryism in his Tamworth Manifesto to deliver 98 additional seats, Boris Johnson must too abandon council tax. Given the financial pressures the coronavirus has placed upon families, anything other than abolition would be actively causing harm to the poorest people in the country. PPT is the simplest way of creating a fairer system of property tax and would help put more money in the hands of those who need it most, and relieve the burden of council tax arrears that 5% of Britons are currently experiencing.
Tom is a Law student at City, University of London and is the winner of the Tamworth Prize 2021.