The wealthy should pay more tax – so tax their property properly
Council tax is a farce – the UK’s “property tax” only weakly relates to property values. Based on valuations that are 27 years out of date, top-band property owners have much lower tax rates than those in cheaper homes. On average those living in £100,000 homes pay around five times the tax rate of those living in £1 million mansions. And a fifteen-minute walk in South London can take you from a £2.1 million flat with a £700 council tax bill to a £400,000 flat with a council tax bill 66% higher.
So why isn’t council tax a major political battleground? Politicians may be wary of touching it given it is used to finance local government. Or they may be scarred by past experience. Or maybe it reflects the national mood where wealth – of which property is a major part – is much less discussed than incomes, despite being vast and much more unequal.
But even if they ever did, for two reasons these excuses no longer pass muster.
First, Britain’s ageing population means that unless we want to start dismantling the NHS, the state is going to need more money in the coming decades, to the tune of £60 billion by 2040. We can’t rely on the usual mix of income and consumption taxes to plug this gap – that would mean 15p on the basic rate of income tax. Taxes on wealth are an obvious candidate to raise additional revenue, especially when they’ve stayed flat over the past 30 years even though wealth has grown 2.5 times faster than the economy.
Second, because it treats big homes and second homes favourably, and under-taxes property relative to other investments, council tax has contributed to escalating house prices – which is shutting out younger generations from home ownership.
The good news is we know how to fix it. A range of experts agree that a proportional or progressive property tax in relation to current values would do a much better job than council tax. New Resolution Foundation analysis shows that such an approach could create many more winners than losers; incorporate protections for asset-rich, income poor older households; and allow for reductions in the much-maligned stamp duty which gums up sales. And, of course, it could raise much needed revenue for public services.