A recent report from the Tony Blair Institute for Global Change, sets out what it sees as future 'reforms’, to sort out public finances and support growth. It is essentially a neo-liberal approach and curiously disregards the problem that growth is leading to climate breakdown and ultimately disaster.
One area, which is examined, is that of reform of property taxes ‘to support growth.' It asserts, “The UK’s property-tax system is holding back growth. Stamp duty – a tax on property transactions – discourages people from moving, limiting geographic mobility and reducing the fluidity of the housing market. It not only adds to the financial strain on first-time buyers but also hampers workers’ ability to relocate for better job opportunities, ultimately holding back productivity growth. Council tax, which is based on 1991 property values, is regressive and misaligned with current market realities,
discouraging efficient use of housing, especially among older homeowners
who under occupy large homes and have little incentive to downsize.”
The belief that people are not moving because of Stamp duty seems to be based on little evidence. The idea that those ‘under occupying large homes’ should be encouraged to move is a distraction - there is no reference to those with a second home or a holiday let - which is an issue to address. The suggestion also curiously ignores the fact that those on low incomes would be ‘encouraged’ to downsize, but those with high earnings would not.
It is correct that the current system of council tax is regressive, yet the alternative proposed is no better and is itself regressive. It suggests “A capped proportional levy set at 0.5 per cent of a property’s current value but with a minimum payment of £1,350 for all properties below £270,000 and a maximum payment of £6,250 for all properties above £1.25 million."
This is flawed in several aspects. The ratio between the lowest and the highest level of tax is 4.6, far smaller than the ratio between the lowest and highest household incomes. A minimum figure of £1,350 is a lot for a significant number of households. It is a regressive system. The affluent would be able to continue as before.
A progressive alternative
Council tax is to pay (to some extent) for local services and using a surrogate value/wealth tax is not an ideal alternative. Households in areas with higher house values and on lower than average incomes would effectively lose out. Far better if a charging system based on household income were to be introduced. This would be fairer and could be adjusted with say a surcharge on second and holiday home owners.
Another defect of a simple property tax based on value is that while having an adverse effect on those on lower incomes, investors and owners of second homes and holiday lets who have higher incomes are unlikely to be deterred from buying or owning property. To deal with this a more appropriate action would be to charge a property tax based on the value of the property in addition to any earnings based local services tax.
Source
Smith, T., Browne, J., Atkinson, I., (October 2024), Looking Beyond UK Budget 2024: Priority Reforms for 2025, Tony Blair Institute for Global Change.
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