It is widely accepted that we are currently in a ‘cost of living crisis’, triggered by the pandemic, rising energy prices and now, the war in Ukraine. It is also in March that the majority of households brace themselves for what they will be charged in Council Tax for the year ahead.
In this article, Andrew Dixon (founder and chairman of Fairer Share) argues that if the Government is serious about levelling up, the time has come to scrap Council Tax and Stamp Duty and introduce a proportional property tax.
How killing off council tax would deliver for voters in the West Midlands and beyond
It is no secret that our council tax system is broken. The Institute for Fiscal Studies has described council tax as “highly regressive” with respect to property value and “increasingly arbitrary and unfair”. The absurd nature of the current system is underlined by the fact that households in Birmingham must pay out 0.75% of their property value in tax whereas the average household in Battersea pays just 0.11%.
What is less well-known is that we could easily replace council tax with a system that would not cost the Exchequer a penny and would lead to lower bills for the majority of households in the UK, with some of the biggest savings going to people in the West Midlands.
The Fairer Share campaign that I chair is calling for council tax and stamp duty to be replaced with a simple proportional property tax set at a flat rate of 0.48% of a property’s value. Since we kicked off our campaign in 2020, we have seen growing signs of support in the House of Commons with MPs from both parties now backing the plan. Among those in favour of a proportional property tax are Aaron Bell, Conservative MP for Newcastle-under-Lyme. “Abolishing Council Tax and Stamp Duty and replacing them with a fairer property tax is the right thing to do for millions of people up and down the country. It is also the right thing for the Conservative Party to do if we are serious about delivering to those who voted Tory for the first time in a generation,” he has stated.
In March last year, Boris Johnson was asked at Prime Minister’s Questions to get behind a proportional property tax which “would create a transparent property taxation system, generate revenues that local government needs and ease the tax burden on hard-pressed families across the country”. We are still working on the Prime Minister but earlier this year the Government did make what looked like a small step in the right direction with council tax rebates given to households in bands A to D. However, the reality is that the one-off payment does not go anywhere near far enough and in many cases is misdirected, often towards people on high incomes living in Band D properties in trendy neighbourhoods where houses sell for millions of pounds.
At best the recent changes to council tax are merely tinkering around the edges of an unfair system that hits young people and households in the Midlands and north of England the hardest. To really deliver for voters in the red wall and beyond, the Prime Minister should act now to kill off council tax and stamp duty and bring in a proportional property tax that would mean lower bills for around 76% of households across England. Overall, £6.5 billion per year would be saved by council tax payers outside central London, representing a huge boost to countless communities and their local economies.
Admittedly, not everyone would be quids in. Some homeowners in London may see a small increase in their annual bills, reflecting the extreme rise in house prices over the past 30 years. But across the country renters would pay nothing and to ensure there are no ‘losers’ on day one of the policy being implemented our campaign is proposing a cap on the increase in tax of £100 per month, not far off the price of a daily cup of coffee.
Households in the West Midlands would be among the biggest winners under a proportional property tax. For example, in Bell’s Newcastle-under-Lyme constituency, 97% of households would be better off with average savings of £600. In Birmingham Ladywood 98% of households would benefit with an average saving of £600. And in Walsall North 100% of households would reap the rewards with an average saving of £800.
Additional research has shown that replacing council tax and stamp duty with a proportional property tax could free up almost 600,000 homes within 5 years, with more than 50,000 of these in the West Midlands. The research by WPI Economics found that of a total of the 595,000 homes, 315,000 would be transactions for better space allocation and 135,000 would be second homes released as primary residences. The rest would be vacant homes released as primary residences and homes built due to previously uninitiated planning permission. This reform therefore, not only addresses the cost of living crisis but also addresses the challenges posed by the affordability and accessibility of housing.
This year we have also commissioned in-depth national polling to establish what voters make of proportional property tax. The findings, which will be published shortly, should make all MPs sit up and take note. In short, we found that voters in constituencies up and down the country have an appetite for a proportional property tax that could well translate into votes for whichever party takes action.
With council tax due to rise yet again in April and the cost-of-living crisis set to deepen, our message to the Government is clear. If they are serious about levelling up and delivering for voters who are struggling with their bills then a proportional property tax has to be part of the package. It is time for ministers to recognise that council tax is an outdated and unjust system that is hurting many middle and low incomes households in modest homes. In its place we should have a modern, simple, proportional property tax that would put more money in the pockets of people across the West Midlands, and up and down the country.
About Andrew Dixon
Andrew Dixon is an investor, founder of ARC InterCapital, a founding trustee of The Woodhaven Trust and founder and chairman of Fairer Share, a national initiative campaigning for the abolition of council tax and stamp duty and the introduction of a proportional property tax.