By Andrew Dixon, of Fairer Share and Radix Big Tent Fellow

Photo by Jonathan Hunt on Unsplash

In England, Council Tax is still based on property valuations from 1991. More than three decades of house price changes have left households paying bills that bear no relationship to what their homes are worth today.

The result is a system that overtaxes poor areas while further boosting homeowners who have most benefited from soaring property values. The average Band D Council Tax bill in England has risen by almost a third since 2021 but rises have been uneven and ever less proportionate to household wealth.

Stamp Duty, meanwhile, continues to clog up the housing market by penalising people for moving. It discourages older homeowners from downsizing, makes it harder for families to move into more suitable homes and adds to the costs facing people relocating for work.

A Proportional Property Tax

Fairer Share favours replacing both taxes with a Proportional Property Tax (PPT). It would be levied annually on homeowners – not tenants - at 0.48% of a home’s current value. Its modelling suggests that 77% of households would pay less, with average annual savings of £556 for 18 million families.

A Proportional Property Tax would end the absurdity of a system in which families in modest homes, including many renters, routinely pay more in council tax than owners of multi-million-pound properties simply because of their postcode.

At a flat rate of 0.48%, we calculate a PPT would be revenue neutral for the Treasury, and create a much more stable base of funding on which to fund the devolved local government the Prime Minister has prioritised.

More immediately, we are calling for the Government to commit to a full, independent review of how property is taxed in this country as part of Andy Burnham’s upcoming 10 Year Plan for Government.

30 Years of Dithering

Governments of all stripes have been too prone to leave or tinker with our broken system rather than being bold and taking the action needed to fix it.

To Labour’s credit it has begun to think more seriously about our broken property taxes. However its headline policy in the area so far, the High Value Council Tax Surcharge known more commonly as the mansion tax, adds extra taxes to the most valuable properties but doesn’t relieve proportionally high taxes on lower band homes.

It has also been suggested the government should add extra council tax bands, a proposal the Treasury has examined in the past. But this faces the same problem.

As long as properties are taxed based on evaluations that are 30 years out of date, many of the poorest households in this country will continue to pay disproportionally tax rates, the economic impact of which will continue to suck up money that could be spent bolstering our high streets.

Why a PPT and not a Land Value Tax?

One of the more serious alternatives suggested to Council Tax and Stamp Duty is a Land Value Tax (LVT), in which the land is taxed according to its value not the property on top of it. It comes from a similar line of thinking as a Proportional Property Tax and so is worth evaluating separately.

A Land Value Tax is attractive in principle, but practical barriers proved decisive: separating land from property value is technically complex, costly, and would delay reform.

Additionally, it would lead to a scenario in which certain people in the areas of the country with the lowest land values could be paying close to zero in taxes annually while others paid multiple tens of thousands more a year, as examined by economist and tax expert Dan Neidle.

Even with mitigations, it is difficult to justify taking so many people out of paying property or land taxes entirely while others pay what would be for many unaffordable sums more.

A Proportional Property Tax (PPT), by contrast, can be implemented swiftly using existing valuation methods, while delivering many of LVT’s fairness and efficiency benefits and avoiding its drawbacks.

The way forward

The UK’s current property tax system is a relic of expedience and compromise. Minor adjustments such as additional council tax bands and the mansion tax risk compounding an already incoherent system.

Reform would be challenging, no doubt. But clinging to outdated and distortionary taxes for unsupported fear of political pushback risks perpetuating a system that is inefficient, unfair and unstable. Property taxation, more than almost any other area, is ripe for brave policymaking.

Andy Burnham has set out to be a bold Prime Minister, tackling problems other politicians have been unwilling to touch. Fixing our property tax system needs to be next on his list.

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