Kemi Badenoch is right to target taxes that hold Britain back. Stamp Duty is one of them. Council Tax should be next.
Property taxation has been a recurring issue over the last few years, revisited by politicians from across the political spectrum as pressures on the current system have mounted. Local government finances are increasingly strained, households are still feeling the effects of the cost-of-living crisis, and Reform UK has benefited from a wider sense among voters that parts of the country are being left behind by a system that no longer works for them.
Bright Blue has helped make the intellectual case for reform: its 2021 paper, Home truths: options for reforming residential property taxes in England, diagnosed the shortcomings of Council Tax and Stamp Duty, noting that Council Tax bears only a tenuous relationship to today’s house prices and that Stamp Duty acts as a tax on moving home.
Just last week, it was reported that Wandsworth Council, known for having one of the lowest Council Tax rates in the country, is considering an increase of up to 160% from April next year. Meanwhile, Council Tax arrears have hit a record £9bn. These pressures are particularly acute in many of the places where Reform UK has been gaining support, while households continue to pay bills determined by a system based on property valuations that date back to 1991.
Fixing Britain’s property taxes should not be a partisan issue. The current system creates problems that cut across the spectrum, from fairness and household finances to housing mobility and economic growth.
When Fairer Share was founded under the last Conservative Government, we worked closely with MPs such as the current party chairman, Kevin Hollinrake, and Lord David Willetts, both of whom are keen advocates for reform and supporters of Fairer Share’s campaign. Our proposals have also been backed by leading think tanks such as the IFS, Onward and the Centre for British Progress as well as leading economists such as Martin Wolf, Paul Johnson and Larry Elliott.
That cross-party case for reform is still visible today. Kemi Badenoch prominently backed abolishing Stamp Duty in her first speech to the Conservative Party Conference. Andy Burnham too has repeatedly argued for reform to Council Tax. A serious solution should bring those instincts together: ending the tax on moving while fixing the outdated Council Tax system that no one would design today.
Under Fairer Share’s proposals, Council Tax and Stamp Duty on residential properties would be abolished and replaced with a simple annual charge based on current property values. Principal homes would pay a standard rate, currently modelled at 0.48%. Liability would shift from occupiers to property owners, so renters would no longer directly pay a property tax on an asset they do not own.
Where reform would otherwise create sharp increases, our proposal contains a series of mitigations to smooth the transition. We propose a £1,200 annual cap on any increase in local tax, alongside the option to defer payment until sale for asset-rich but cash-poor households. This would ensure reform is fair, phased and proportionate.
The benefits are potentially enormous. We calculate that 77% of households, around 18 million, would pay less with an average saving of £556 a year, boosting local economies through additional spending and easing the cost of living for millions.
By abolishing Stamp Duty, a tax on aspiration and one of the most distortive taxes in the economy, more first-time buyers could afford to step onto the property ladder. Areas where the housing market is struggling like London and the South East would be given a much-needed lifeline. Older homeowners would also have greater freedom to move to homes that better suit their needs, whether through downsizing, moving closer to family, or enjoying retirement somewhere better suited to later life.
More fundamentally, replacing Council Tax with a flat levy, based on current values, will create a truly sustainable tax base and will end the spiralling tax rises which have attempted to patch up struggling local government services. Fixing our broken property tax system is a necessary precondition to fixing local government, social care and a host of other issues in a financially sustainable way.
Each year, the current system becomes harder to defend. The relationship between what a home is worth and what its owner pays has become increasingly distorted, and it will only get worse.
That is why we are also calling on HM Treasury to commission a full, independent review of Council Tax and residential Stamp Duty. The review should test the fiscal, distributional, local government and practical implications of reform, supported by HMT and OBR modelling using Valuation Office Agency, Land Registry and HMRC data. The aim should be to build the evidence for reform and establish the broad political consensus needed to deliver lasting change.
The review would need to protect confidence in the housing market. The Government should make it clear from the outset that reform would be phased, existing homeowners would be protected through caps and deferrals, and people buying during the review would not be penalised. The purpose is to remove barriers to moving home, not create new ones.
Property tax reform is pro-market and pro-growth. It follows the principle of tax simplification, helps first-time buyers, and supports the aspiration of our young people. The era in which we are penalised for buying a home or for moving to a new area for work must end.
Conservatives have an opportunity to push the government to be bolder, calling for both a property tax system that works better and arguing against punitive taxes that discourage home ownership and mobility.
There is a political risk in simply defending the status quo. With Burnham positioning himself as more radical and Farage benefiting from frustration with a system many voters feel no longer works for them, Conservatives should be wary of defending a system that nobody would design today.
Original photo by Matt Seymour.