Council Tax and Stamp Duty Alternatives
(1 year, 6 months ago)
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Simon Fell (Barrow and Furness) (Con)
I beg to move,
That this House has considered the matter of alternatives to Council Tax and Stamp Duty.
It is an honour to serve under your chairmanship, Mrs Harris; we have spent a lot of time together today. I will address the problems with our property taxes, discuss previously suggested remedies and present a solution that cuts taxes for 77% of households, generates a surplus and garners popular support. I do not intend to speak for long. A lot of colleagues are present, and I want to hear their views, and hear from the Front Benchers.
I realise that this area is fraught with danger. My first political memory is of the poll tax riots. We all know the consequences of trying to shake up the domestic rates system, but our current property taxes unfairly favour the wealthy, burden lower-value homes, discourage efficient housing use, under-tax larger properties and penalise homebuyers and sellers. Those issues affect us all, and all our constituencies. Property taxes fund our important local services and infrastructure. They impact owners and renters alike. When these taxes are ineffective, society suffers. Council tax and stamp duty are the main culprits.
Council tax was introduced three decades ago, in 1993, as a replacement for the unpopular community charge—the poll tax—but over time council tax has come to mirror many of the characteristics of its disliked predecessor. Surveys reveal public dissatisfaction with it. Only 29% of people consider council tax calculations fair, and 33% support maintaining the status quo. It places the greatest burden on the young, low earners and residents in less prosperous regions, while greatly benefiting wealthy homeowners and property investors. As property prices have soared, average incomes have stagnated. Research by the think-tank Onward shows that households spend between 0.8% and 4.5% of their income on council tax, with the highest payments in the north-east and south-west and the lowest in London. That is not the mark of a fair tax.
It is unfair for two reasons. First, it relies on outdated property valuations from almost 30 years ago, disregarding substantial house price growth, especially at the top end of the market. That means that those who benefited the most from house price rises have also been the biggest beneficiaries of the council tax system. Secondly, the band structure creates a disproportionate burden, as all properties within a band pay exactly the same amount. Consequently, lower-end properties in each band bear a higher proportionate tax load than high-end ones. Those flaws sever the link between council tax and property values. For example, a person in a £100,000 property pays roughly five times more tax relative to property value than someone in a £1 million property. Here in Westminster, a £30 million mansion pays £1,828 in council tax, while a family in a modest band D home in my constituency of Barrow and Furness pays £2,068. How in the world can that be fair?
Stamp duty, council tax’s accomplice, compounds the problem. While stamp duty is progressive, with higher rates for larger transactions, it still exacerbates the housing crisis by hindering efficient property use. Taxing transactions discourages homeowners from moving, whether it be an older couple downsizing or a growing family upsizing. The economic impact extends to job opportunities rejected due to moving costs. The Chancellor’s stamp duty holiday gave the UK property market a much-needed boost during the pandemic, but it also highlighted the merits of abolishing it altogether. Stamp duty hampers housing stock utilisation and residential mobility. Abolishing stamp duty on owner-occupied properties would unleash transactions and alleviate the housing crisis. Stamp duty should, however, remain in place for second home and non-residential buyers. In communities such as mine in Barrow and Furness and in Cumbria more widely, with villages being hollowed out by owners of second homes and holiday lets, that just makes sense.
Our country’s property taxes, unpopular and unfair, demand reform. Proposed remedies so far have included new council tax bands, local income tax, higher stamp duty thresholds and capital gains tax on primary homes, but they are just band-aids. Fundamental reform is required to address the inequity and inefficiency of our property taxes.
Mary Robinson (Cheadle) (Con)
I congratulate my hon. Friend on bringing forward this debate and on the eloquence of his speech; this is an important subject. Does he agree that one of the issues with council tax is that it is very much subject to the vagaries and the whims of whichever political party is in charge of the town hall? The Liberal Democrats in Stockport said that they wanted to freeze council tax, but when in power they put it up by 4.3%. That is an extra burden on taxpayers, and they do not necessarily get any value for that money.
Simon Fell
My hon. Friend makes an excellent point; I am sure that her electorate in Cheadle will have been listening hard. As I have said, only 33% support keeping council tax as it is. I am sure that that number is even lower in my constituency, where the administration has put up council tax by 3.9%. They are very unhappy with the current situation.
I and many of my colleagues support a move to a proportional property tax system, which is a methodology put forward by Fairer Share. It offers a concrete solution to replace the current convoluted band system with a simple flat tax of 0.48% of property value, and a 0.96% surcharge for second homes, empty homes and non-residential properties.
The benefits of moving to such a system would be significant. Some 18 million households would experience a tax reduction, with an average annual tax saving of £556 per household. Council tax payers outside central London would save £6.5 billion annually, providing a substantial boost to local communities and economies. Over 750,000 house buyers each year would be exempt from paying stamp duty and navigating exemption paperwork, simplifying and reducing the cost of house buying. Increased housing market activity would contribute to a £3.27 billion boost in GDP per year.
Some 1.4 million second homes, empty homes and undeveloped properties would finally contribute their fair share of tax, with the revenue used to lower bills for all taxpayers. That would incentivise owners to rent, sell or develop those properties and increase the housing supply. The calculation is that over the span of five years, 600,000 homes would be released. That includes 250,000 one and two-bedroom homes, which we know young people desperately need right now. The reform would generate an annual surplus of £5.4 billion through surcharges on second, empty and foreign-owned homes. I am sure the Treasury can think of inventive ways to spend that sort of money. Finally, shifting the tax burden to owners, aligning with broad international practice, would also ease administration for councils.
However, it is rare—perhaps impossible—to propose a wide-ranging reform where there are not winners and losers. After all, we are proposing to rebalance the property tax system based on principles of fairness. However, there are several mitigations that could be implemented to soften the blow of any change for those who might have to pay more. First, during the transition to a proportional property tax system, any rise in local property tax could be capped at £100 a month for primary residences. That transitional protection would cease upon sale, but buyers could benefit from the removal of punitive stamp duty. Secondly, a deferral mechanism could be put in place, allowing owners who are genuinely unable to pay to defer their tax payments with a modest interest charge. That deferred amount could be paid later on the sale of their property or home, avoiding any debt-related issues associated with council tax collection. Those measures aim to alleviate the impact on individuals while ensuring a fair and manageable transition to the new system.
Of course, there would also be impacts on local government finance. For councils that would generate less revenue from a proportional property tax compared with their current council tax, the shortfall would need to be supplemented through central Government grants or funds redistributed from councils generating higher PPT revenue. The arrangement is not new, and it is a long-standing feature of local government finance. It could be seamlessly incorporated into the proportional property tax system with the following principles.
First, the Government could fully recognise how the proportional property tax affects the revenue-raising capacity of councils when formulating the funding arrangements for local government. Secondly, councils could be granted new powers to independently generate additional revenue. Some councils may experience a decrease in revenue-raising capacity, but there are opportunities to introduce new revenue-raising powers, such as planning reforms and charging more for increased house construction. Again, that would be beneficial for counties such as Cumbria, Devon and Cornwall that are facing the accommodation and short-term let issues that I mentioned earlier.
Thirdly, while some councils might be sceptical about the transition to proportional property taxes because it could result in severe revenue-raising capacity issues, it is important to note that it is the residents in such areas who will benefit most from a decrease in property tax bills. Finally, the policy may also create incentives for companies and individuals to relocate to areas with lower proportional property tax rates, benefiting those communities and eventually increasing the revenues for local authorities. The measure rebalances the local economy and helps level up left-behind areas in one fell swoop.
If taken up, the measures would address the impact on local government finance by ensuring a balanced transition, exploring new revenue sources and considering the overall benefits and adjustments that can be made to accommodate different council circumstances. The reform is crucial for my constituents in Barrow and Furness. It will benefit 96% of the households there, with an average annual saving of £600. It is no surprise that 58% of voters in my constituency support the policy, with only 9% opposing it, according to polling by J.L. Partners. Nationally, voters overwhelmingly back the policy by a ratio of 3:1—in the north it is 9:1. A majority of voters in every constituency support the reform. I fundamentally believe that we should lead with policy and not follow polls, but those are numbers that are worth paying attention to.
Council tax and stamp duty are fundamentally flawed, and many of us recognise that. Politicians from most of the parties represented in this Chamber, along with think-tanks such as Bright Blue, the Institute for Fiscal Studies and the Institute for Public Policy Research, and campaign groups such as PricedOut, Generation Rent and the Intergenerational Foundation, have endorsed the transition to a proportional property tax. Prominent economists from respected publications, including the Financial Times, The Daily Telegraph, The Economist, and The Guardian have also endorsed the reform.
The policy would significantly increase the disposable income of individuals across the country, directly benefiting households and improving the quality of life in local communities. It would free up properties, encouraging efficient use, and, crucially, it is based on the principle of fairness. It represents a genuine and impactful stride towards levelling up and advancement for all. I look forward to listening to what my hon. Friends and colleagues have to say.
Carolyn Harris (in the Chair)
I remind Members that they should bob if they wish to speak. I intend for the first Front Bencher speech to start at 5.08 pm, so I would be grateful for brevity in speeches and interventions.
Aaron Bell (Newcastle-under-Lyme) (Con)
It is an honour to serve under your chairmanship, Mrs Harris. I congratulate my hon. Friend the Member for Barrow and Furness (Simon Fell) on securing this debate and putting forward the case so adeptly in his opening remarks. I do not intend to repeat them. I have spoken in favour of Fairer Share’s proposals in the past, and I think there are more things that we can do besides. I also note that the Housing, Communities and Local Government Committee report from July 2021—I think my hon. Friend the Member for Cheadle (Mary Robinson) was on the Committee at the time—suggested that the Government look at this area.
I welcome all the refugees from the Finance (No. 2) Bill Committee who are in the Chamber. It is a pleasure to support the Government on that, but what we are trying to do today is steer them towards ways in which they can improve our tax system in the future. I am sure the Minister will be taking notes.
I pay tribute to Fairer Share, Andrew Dixon and the people behind that campaign, for the work they have done devising the policy and producing the straight-forward numbers at the top of it, as well as for thinking incredibly hard about its implementation challenges. They have addressed the issue of valuation, which my hon. Friend the Member for Barrow and Furness referred to, and thought about how to phase it in, how to manage the revenue flows and how to manage the impact on councils. That work has been done in advance of the Treasury considering the policy. I am sure that the Treasury would look favourably at the various reports commissioned by Fairer Share, as ways in which the policy could not only be brought in but implemented in a practical way.
I will quote a few figures that reference my constituency of Newcastle-under-Lyme. Under the proposals, the average household in Newcastle-under-Lyme would gain about £600 per year, and 97% of my constituents would be better off under this regime. We know that council tax hits constituencies such as mine and those of many hon. Members here today harder, partly because it relies on that 1991 valuation. There has been a disproportionate property boom. Prices have risen everywhere, but disproportionately in the south of the country. Therefore, people in constituencies such as mine and that of my hon. Friend the Member for Barrow and Furness are paying a far greater proportion of their property’s value in their annual council tax.
I do not want to go through all the details, because I am mindful of your strictures on brevity, Mrs Harris, but I think that moving the burden of council tax to the owner of the property rather than renters is a sensible step, not only to take a little bit off the renters’ plate, but to make life easier for councils’ collection departments, because the house is sold far less frequently than the lease changes. It is a difficult job for council collection units to keep up with those changes and ensure that people do not fall behind with their council tax when they move into a property. We all have constituents who have fallen behind with their council tax, and it can be very difficult for them to recover.
This policy would complement the Government’s levelling-up agenda. Newcastle-under-Lyme has been very fortunate, receiving more than £35 million through the towns fund and the future high streets fund to level up. I always say that levelling up is not just about nice new buildings and transport links; it is also about jobs and skills. We have to get the tax part right for levelling up, too. A policy like this would mean levelling up across the country for anyone in those poorer, lower-middle-income households. It would mean a £556 annual tax cut for 19 million people in those households. It would mean the Treasury’s approach dovetailing with that of the Department for Levelling Up, Housing and Communities, in terms of the direct support given to communities such as mine. This would give direct support to families living in those communities, and families living in lower-priced houses throughout the country. It would be genuinely levelling up across the country.
Finally, I will say a quick word on stamp duty, which my hon. Friend the Member for Barrow and Furness did not cover quite so much in his speech. We hear a lot about the housing crisis and the need to build more houses to address that. In my view, downsizing is key to solving our housing crisis in this country. Obviously, people live in houses, but, in a real sense, people live in bedrooms, because someone needs a bedroom to sleep in. We have an appalling allocation of bedrooms in this country. Understandably, many people, including retired couples, still live in the house where they brought up their children. That might be a four-bedroom house in they are using only one bedroom. There are so many unoccupied bedrooms in the private sector.
This reform to stamp duty would address the impediment of stamp duty itself being a reason that people do not want to move home—it is expensive to move, even if downsizing, particularly in the south-east. The reform would also provide a strong incentive for people to downsize to a lower-value home. For all those reasons, I hope that the Treasury is listening to my hon. Friend’s proposals. I am fully in support of the motion.
Several hon. Members rose—
Carolyn Harris (in the Chair)
Unfortunately, I will have to impose a three-minute limit. The next speaker is Tim Farron.
Tim Farron (Westmorland and Lonsdale) (LD)
It is a pleasure to serve under your guidance this afternoon, Mrs Harris. I offer massive thanks to my neighbour and friend, the hon. Member for Barrow and Furness (Simon Fell), for bringing this important issue to the House. It is important for all parties, as they put their manifestos together for the next election, to think about this matter very seriously. I pay tribute to Andrew Dixon and his team.
The proposal for a proportional property tax is worthy of serious consideration. Council tax—basically a back-of-a-fag packet alternative to the poll tax dreamed up quickly in the early 1990s—is a bad attempt at a wealth tax, which fails miserably. It is regressive: someone can live in a £20 million mansion in Westminster and pay less in council tax than someone living in a social rented home in Kendal, Windermere, Grasmere, Appleby or Kirkby Stephen. The most a very wealthy person could pay in council tax is three times more than the least wealthy person pays.
A solution is needed, and a proportional property tax potentially provides it. It would help us to move away from a council tax that pushes people into poverty, makes them pay bills they cannot afford, adds to the cost of living crisis in my communities and others and distorts a housing market that is already not normal, exacerbating the problem. In an area like my constituency, where there are 6,000 people on the council house waiting list and a minimum of 7,000 second homes, we can see that problem. I am proud that Westmorland and Furness Council took up the Government’s new permission to double council tax on second homes, but that is still a minor blip for somebody who can afford a £750,000 extra home in the Lake district.
This new tax would allow us to use sliding scales and surcharges to ensure that people pay a fair amount for the property that they have. A wealth tax would take account of their ability to pay and would therefore allow a massive majority of my constituents, and everybody else’s, to pay a more reasonable amount. In my community, the average house price is about 12 times the average income, so the average person is completely snookered when it comes to getting into the market. This new tax would allow us to do something about the distortion that council tax brings about by encouraging people to live in homes for which they do not pay a fair value, while a massive majority pay far too much. I agree that encouraging downsizing is a really important way of at least alleviating the housing crisis, but because the proportional property tax would be payable on undeveloped land with planning permission, it would bring into use predominantly brownfield sites so that we could actually get homes built.
We want to tilt the scales against second homes and towards first homes in communities like mine. If levelling up is to mean anything, we surely want to shift towards a system that disincentivises multiple home ownership and property investment, and incentivises people to have homes as homes.
Jill Mortimer (Hartlepool) (Con)
It is a pleasure to serve under your chairmanship, Mrs Harris. I thank my hon. Friend the Member for Barrow and Furness (Simon Fell) for securing this important debate. Hartlepool has one of the highest council-tax-to-property-value ratios in the country. I pay three times more in council tax for my home in Hartlepool than for my rented London work flat, despite that flat being worth many times more than the Hartlepool home. That high cost is simply unfair on my constituents, and there is an urgent need for reform.
Reform based on a proportional property tax such as the one proposed by the Fairer Share campaign would save my constituents £950 on average. The question must be asked, though, why council tax is so high in Hartlepool and so comparatively low in Westminster. It is fair to concede that we have a larger number of band A properties in Hartlepool and more deprivation, so arguably bringing prosperity to the town will help to ease the council tax burden. Sadly, we also have many children in care, and Hartlepool Borough Council spends many thousands of pounds per week per child in care. That accounts for a large proportion of our council tax. I have also been told that the council spent over one third of a million pounds in one year with just one taxi company running children around.
The Conservative-independent coalition has been in power for only the past two years, and a ship as cumbersome as Hartlepool Borough Council takes more time than that to turn around. However, the local Labour party’s recent success in the local elections was based largely, I suspect, on its manifesto pledge to freeze council tax this coming year. I support council tax in Hartlepool being frozen, just as it was by the newly elected Conservative-led coalition in 2021—interestingly, that was not supported by the Labour group at the time, but now it has decided that it should be frozen. If the Labour group thinks it can freeze it, I think the Conservative-led coalition can do better. I will work with the new Conservative leader, examine Hartlepool’s accounts, sharpen our pencils and find a way to cut it. This is not an empty, unicorn promise to put on a local election leaflet; the local election is done. It is something that I believe should be done for the good of the people of Hartlepool.
Peter Grant (Glenrothes) (SNP)
The hon. Lady clearly blames the previous Labour administration in Hartlepool for the high council tax rates there. Why does she think that in Westminster the council tax on a typical band D property is over 50% higher than in Fife?
Jill Mortimer
I am not here to comment on comparisons between Westminster and Fife, but clearly huge amounts of money have been squandered in Hartlepool without any care. It has been the usual Labour spending of other people’s money—very sadly, as that money belongs to the hard-working families I represent. However, cutting council tax in Hartlepool is something for the short term. Looking further forward, we must find a fairer way for communities like mine. Councils must not be allowed to see this as carte blanche to go on careless spending sprees.
Councils run by Conservatives, with better fiscal responsibility, invest their money wisely. They do not fritter it away on vanity projects. They keep a rein on their public spending. They also invest in order to have other income streams than just asking for more handouts from their council tax payers and the Government. We have seen that in Hartlepool in the two short years of the Conservative-led coalition, which has worked with me to secure investment in the town and provide more jobs, for example at the Northern Studios and the production village led by the internationally acclaimed Northern School of Art. A proportional property tax would enable us to continue to deliver good services and to invest in prosperity-generating projects, while lowering the financial burden on the local community.
Mary Kelly Foy (City of Durham) (Lab)
I thank the hon. Member for Barrow and Furness (Simon Fell) for securing this important debate. It is good to see cross-party consensus; I hope the Minister will note that it is not a party political issue. I also pay tribute to my hon. Friend the Member for Easington (Grahame Morris) for his work in highlighting the problems with council tax.
We all know that council tax is flawed. Our constituents know it, we know it and the Government know it, too. The reality of council tax is that it is making councils overly reliant on locally raised revenue streams in order to offset Whitehall cuts. What makes the situation even worse is just how regressive council tax is. It baffled me when I was a local councillor, as it still does, that council tax is based on property valuations made in 1991, over 30 years ago. It was supposed to be revised periodically, but that has never happened in England. Housing inflation since 1991 has made those valuations nonsensical. Crucially, it means that the richest households, who live in the most expensive houses, are not paying their fair share. Billionaires in London will pay the same tax as someone occupying a modest property. Council tax has become like the “community charge”—the poll tax—that it was supposed to replace.
I appreciate that the Minister could not announce a policy change here in Westminster Hall today even if he wanted to, but can he give us a sense of what is happening in the Department on this issue? Last November, at a sitting of the Levelling Up, Housing and Communities Committee, the Secretary of State said that the Department was looking into local government finance. Where has that process got to? When are we likely to hear again from the Secretary of State? Will we see a Green Paper? More broadly, can the Minister share his thoughts on re-evaluating property prices? As I said, the current valuations are over 30 years old. I would appreciate an answer from him on those points.
The cost of living crisis is affecting all our constituents. It is leaving people with extremely difficult choices to make. In many cases, their choice is between heating or eating. These are the families who desperately need our vital public services. Replacing council tax with something progressive, as well as adequate funding from Whitehall, would ease the burden on those families and strengthen our public services locally. We need to do this as a matter of urgency.
Several hon. Members rose—
Carolyn Harris (in the Chair)
Order. Unfortunately, we are now down to two minutes for each speaker.
Peter Gibson (Darlington) (Con)
Thank you, Mrs Harris, for calling me to speak. It is a pleasure to serve under your chairmanship. I congratulate my hon. Friend the Member for Barrow and Furness (Simon Fell) on securing this debate.
The council tax system is fundamentally flawed. As we have heard from the hon. Member for City of Durham (Mary Kelly Foy), the property values are from 1991 and are in many cases entirely hypothetical, leading to individuals paying a higher share of their property value and an ever-increasing share of their income.
Analysis by Fairer Share computes that almost 99% of the 50,000 homes in Darlington could benefit from a reduction of approximately £750 a year in their local council tax. That is a significant saving for every home in my constituency. We cannot ignore the potential savings for that community.
I draw the House’s attention to my entry in the Register of Members’ Financial Interests, and I declare an interest: I was a high street solicitor prior to being elected to this place. I saw on a daily basis the adverse effects on the housing market of stamp duty, which is putting a barrier in the way of home ownership and home moves, causing a bunching of pricing where tax levels change and, basically, using the legal profession as an unpaid tax collector.
A reform to local council revenue and housing market taxes is overdue. Some 30 years since its introduction, we must consider alternatives to council tax. There is the potential to make the system significantly fairer for some of our poorest communities across the country, and we should not dismiss the idea of a proportional property tax too quickly. I look forward to the Minister’s considered responses and thoughts on the matter.
Richard Burgon (Leeds East) (Lab)
I congratulate the hon. Member for Barrow and Furness (Simon Fell) on securing this important debate on alternatives to council tax and stamp duty.
The Government need to look at more progressive alternatives to council tax, which is very regressive, as has been said. I draw hon. Members’ attention to the work of the Fairness Foundation. Its important research on this very issue, which is out later this week, makes the point that low-income households spent two to four times more on council tax, as a percentage of their income, than richer households. The research also makes it clear that people want the Government to do more to tax the richest in society. Council tax is deeply regressive, so the Government must lay out alternatives. Some 68% of people think that the Government should be doing more to tax high net worth individuals—those with £10 million or more—and 79% of people worry that the wealthy do not contribute their fair share. It will be no surprise to hon. Members that I encourage the Government and the Minister to consider real wealth taxes on the very richest.
I also draw hon. Members’ attention to a campaign that is being run by the community union ACORN, which argues that when the Levelling-up and Regeneration Bill becomes law, councils should implement a 100% council tax premium on second homes and empty homes to help to fund important expenditure on council housing. I have lent my support to the campaign, and I will support that proposal if and when the Bill becomes law. We have heard about the issue of second homes and holiday homes, which could be looked at. I encourage the Minister to look at the Fairness Foundation’s research when it comes out later this week; it is about what can be done to move to a more progressive taxation system in which the super-wealthy pay their fair share.
Mary Robinson (Cheadle) (Con)
Thank you for calling me, Mrs Harris, but I was intending only to intervene in the debate, so I will leave the time for the other speakers.
Chris Loder (West Dorset) (Con)
Thank you so much for calling me to speak in this very important debate, Mrs Harris. I pay tribute my excellent colleague, my hon. Friend the Member for Barrow and Furness (Simon Fell), for bringing this debate to Westminster Hall.
West Dorset has one of the highest council tax rates in the country. Council tax for the average band D property is in the region of £2,300 per year, which is absolutely outrageous. There are many different components to that: council tax is one, but the revenue support grant—I have lobbied long and hard for its review—also needs to be considered. It is fundamentally wrong that London boroughs, which are often Labour-led, have revenue support grants of £24 million-plus, yet in Dorset we have a revenue support grant of virtually zero.
We do not have to go very far to understand why council tax is higher in rural Britain than in urban Britain. We should pay tribute to the Fairer Share campaign. Its work is excellent; I wholly support it and shall continue to do so. West Dorset, for example, has one of the highest average ages: a third of my population is over 65. That has an associated social care requirement, which is funded through council tax. The burden on local people is therefore much higher than it may be in other areas, such as the London Borough of Wandsworth. That London borough has one of the lowest average ages in the country, yet it receives tens of millions of pounds in revenue support grant. That is wrong, and it needs proper review.
I hope that the Minister hears my message loud and clear. We all expect a full review of council tax and the different levers that contribute to it, as many of us have argued long and hard in debates on local government finance motions.
Robbie Moore (Keighley) (Con)
It is a pleasure to serve under your chairmanship, Mrs Harris. I thank my hon. Friend the Member for Barrow and Furness (Simon Fell) for securing this important debate. Like other hon. Members, I feel that council tax needs to be reformed, but I want to limit my contribution to the nuanced empty homes premium that exists in the current council tax structure, which is unfairly disadvantaging many of my constituents in Keighley and Ilkley and many people across the country.
Since 2013, local authorities in England have had discretionary powers to charge additional council tax on properties that are unfurnished for two years or more, with more tax being charged the longer the property is unfurnished. In my constituency, Bradford council charges 200% after two years, which rises to 300% after 10 years. The policy might have been introduced for all the right reasons at the time: discouraging individuals from banking multiple properties, and encouraging empty homes to be brought back into the fold. However, that tax hike has had unintended consequences.
As the housing market is being squeezed and young families struggle to get on the housing ladder, that additional tax on home buyers—particularly on young families who might want to buy an empty property, renovate it and do it up, but are unable to do so in the two years of free time that they have before the 200% kicks in—makes it unachievable. When many are struggling to get builders and contractors in, and might find difficulties because the home is not in the condition they thought it would be in and they have to make it adequate and fit to live in, the 200% increase through the empty homes premium is having a negative impact on the many householders who want to do up their properties.
There is also an impact when individuals want to sell a property but cannot sell it within the period of time that the home is vacant. The Treasury has indicated that that is something that it is likely to review; the levelling-up White Paper is also looking at reviewing it. My plea to the Minister is that he look at the negative consequences of the empty homes premium when carrying out a further report.
Kirsty Blackman (Aberdeen North) (SNP)
Thank you for your diligence in chairing the meeting this afternoon, Mrs Harris. It has been a busy debate, so it has not been the easiest job.
I congratulate the hon. Member for Barrow and Furness (Simon Fell) on securing this debate. It is important that we discuss and think about the future of tax policy. Too often, there are only seven of us in the Chamber when tax policy is being discussed, so it is nice to see such a full room talking and thinking about the future of tax.
The situation in Scotland is similar but different: we have council tax and we have stamp duty, but it is now called the land and buildings transaction tax and is structured slightly differently. We introduced the LBTT in 2015, and it has been in place since then. The charge we pay in Scotland is more proportionate to the property price than stamp duty is in England, and we have a slightly different system that means that 40% of people who buy houses—it is separate from the additional dwelling supplement—do not pay any LBTT. Also, if a property is under £175,000—the majority of first-time buyers buy at that level—the LBTT is not payable at all.
Helen Morgan (North Shropshire) (LD)
On the point about stamp duty and similar taxes, does the hon. Lady agree that there is an opportunity to graduate those taxes to reflect the energy performance of a building so that we might encourage people to retrofit buildings and use the tax regime in a way that would meet some of our carbon targets?
Kirsty Blackman
I had not considered that before. It is very novel, and a good idea that should definitely be considered.
We are looking at council tax reform in Scotland. We agree that the system is not currently as fair as it could be. The Scottish Greens, along with the SNP and the Convention of Scottish Local Authorities, are planning short-term reforms and looking at how to approach long-term reforms to council tax. We also have a more proportionate system in Scotland for council tax. The hon. Member for Westmorland and Lonsdale (Tim Farron) talked about the amount that the highest payers pay, compared with the lowest payers. It is different in Scotland, where it is higher for those at the top.
Council tax is significantly less in Scotland, as my hon. Friend the Member for Glenrothes (Peter Grant) mentioned. Our properties are £600 less for a band E property on average across Scotland compared with England. The Scottish Government have committed to abolishing council tax for anyone under the age of 22. That flies in the face of what the UK Government are doing, which involves paying young people less, giving them less in benefits and, basically, disadvantaging them at every opportunity.
We also have a situation whereby people who were looked-after children on their 16th birthday will be eligible for a council tax reduction to zero until their 26th birthday. We have put that in place because we recognise the hardship that young care leavers feel in many areas of life, so things are slightly different in Scotland. We still do not have as fair a system as we would like, and we are still looking to reform it, but we are committed to making those changes.
James Murray (Ealing North) (Lab/Co-op)
It is a pleasure to speak in the debate with you as Chair, Mrs Harris. I thank the hon. Member for Barrow and Furness (Simon Fell) for securing it, and I particularly thank my hon. Friends the Members for Leeds East (Richard Burgon) and for City of Durham (Mary Kelly Foy) for their contributions.
I am sure we will shortly hear from the Minister about whether the Government have any plans to introduce a new system of property taxation. However, if they were to agree to develop and implement a new system, it would clearly take some time. They could already be helping working families by freezing council tax this year, which could be funded by strengthening the windfall tax on oil and gas producers. As the Minister will know, I and my colleagues have been deeply concerned about the increase in council tax that the Government have forced on local authorities and households this year. That tax rise has taken the bill for a typical band D property above £2,000 for the first time. It comes in the middle of a cost of living crisis and from a Government who have been responsible for 24 tax rises and for making the tax burden the highest in 70 years. At the same time, they have refused time and again to close gaps in the windfall tax on oil and gas producers’ unexpected and excessive profits. We have long said that it cannot be right for the Government to leave money on the table like that while pushing up taxes yet again for working people across the country.
The debate is focused on stamp duty as well as council tax. The last time the Government made significant changes to stamp duty was in autumn last year. The main change was to increase the nil rate threshold for stamp duty payments on residential properties, effectively by removing the lowest band. The changes were introduced by the previous Chancellor, the right hon. Member for Spelthorne (Kwasi Kwarteng), under the brief premiership of the right hon. Member for South West Norfolk (Elizabeth Truss). They were continued by the current Chancellor and Prime Minister—albeit on a time-limited basis—at a cost to the public finances of £1.7 billion a year. We opposed those plans and made it clear at the time that it would not have been right or responsible to support them. Given that our economy was reeling from the long-term damage the Government had done, with current and future homebuyers facing a Tory mortgage penalty, this was not the time to spend £1.7 billion a year on that tax cut. Despite that, the Government pushed ahead. So when it comes to stamp duty, it is clear that they do not have a record of spending public money wisely.
Aaron Bell
I am interested in what the hon. Member just said. Would a Labour Government put the stamp duty limit back to where it was—a tax penalty for millions of Britons?
James Murray
As I said, we opposed the stamp duty cut because it is not a way to spend public money wisely. We are clear that a Labour Government would spend public money wisely, making sure that we eased the burden on working people, who are suffering the highest tax burden in 70 years. I will be interested to see whether the Minister attempts to defend the mini-Budget stamp duty changes. Will he also defend the Government’s council tax rise and their failure to strengthen the windfall tax?
I will conclude, because I am conscious of the time. The Opposition believe that our country needs a tax system that is fairer, not one in which an ever greater burden falls on working people, and that is what we will continue to fight for.
The Economic Secretary to the Treasury (Andrew Griffith)
It is a pleasure to see you in the Chair, Mrs Harris, and to serve under you today. Let me join others in congratulating my hon. Friend the Member for Barrow and Furness (Simon Fell) on securing this well-attended debate. I note the largely cross-party nature of the contributions—with the exception of the speech by the hon. Member for Ealing North (James Murray)—and I will try to reflect that in my tone. We welcome this opportunity to discuss the important issue of property taxation, including the current status of council tax and stamp duty. I have heard the concerns that have been articulately put on behalf of Members’ constituents in many different parts of the country, and those concerns have been thoughtful and constructive.
For many people, council tax is the most fundamental tax: we pay it every month, it is highly visible, it has an impact on all sorts of important decisions and, when we pay it, we know what services we are getting for it. It has the strength unique in the taxation system of being local and personal. That is not to say that it is perfect, and we have heard today about some of the difficulties manifested in some communities.
Importantly, council tax is set, collected and retained by democratically elected local authorities, and I ask colleagues to think about that as we think about potential reforms. It ensures that households contribute to the cost of local services, whether that is fire and rescue, refuse collection, transport, libraries or—this is a particular passion for my constituents in Arundel and South Downs—dealing with potholes.
Council tax is a well-understood tax and has a high rate of collection and a stable base. It does not, for example, go up and down with property prices, as some potential alternatives might. Therefore, it gives local authorities a strong degree of certainty in their financial planning. On aggregate, it raises about £36 billion for local councils in England. That is about 57%—very importantly, the majority—of their core spending power. Council tax is the largest single source of revenue for local authorities. To ensure fairness, it is mitigated—we heard a little about this—through a range of reliefs, such as support for those on low incomes, a reduction for those with a disability and an exemption for students.
Stamp duty is an efficient tax to administer and collect. It raises a really substantial sum—£14 billion that the Government use to pay for essential services, such as the NHS, schools and police.
So these are not easy issues. For all of us thinking about the best way forward and about how to chart a course for reform, this issue does pose questions that are worth thinking about. Notwithstanding the advocacy of the proposal from many hon. and right hon. Members in the debate, neither the Opposition Front-Bench spokesman, the hon. Member for Ealing North, nor the distinguished hon. Member for Westmorland and Lonsdale (Tim Farron) actually went to the point of committing to make this change, so I would contend that there is a little more work to do.
Andrew Griffith
Although the hon. Member does not represent England, perhaps he would like to make that commitment.
Peter Grant
At least we agree that we are no longer a United Kingdom—I am pleased to agree with the Minister on that.
Given the increasing complexity and scale of services that local government in Scotland and England has to provide, does the Minister see any benefit in giving councils the power to raise taxes based on something other than simply property values? Is it time to broaden the base so that they can raise their own incomes tax, VAT, sales tax or tourist taxes—or are the Government obsessed with the idea that their core tax will always be based on imaginary property values?
Andrew Griffith
In the interests of trying to reflect the views of hon. Members, I will not be distracted by that interesting idea. Again, the proposal that has been put forward does acknowledge the opportunity for local authorities to diversify their sources of revenue. One of the issues that, as a democrat, I find most problematic with this proposal is the impact it would have on local authorities. Their ability to raise revenue for themselves would be taken away, which would be one of the single biggest—and adverse, in my view—issues for local government. The system is often accused of being overly centralised, but this proposal would absolutely remove any ambiguity whatever, and that is something that the advocates of this proposal may want to think about.
Helen Morgan
I am grateful to the Minister for giving way. On the point about stability, surely a simple step to address some of the inequality in the current system would be to reassess the valuations and introduce higher bands of council tax.
Andrew Griffith
Higher bands have been introduced over time. It has been a long time—just as a point of fact—since there has been a revaluation. I note that both the Labour party and the Liberal Democrat party served in Government for significant periods during that time, so it is not just among Government Members that there is caution about some of the unintended consequences of doing something that affects so many people. The impact on those with low and fixed incomes of moving any sort of basis of property tax should be thought about carefully.
The hon. Member for Leeds East (Richard Burgon) was candid about his desire to soak the rich with wealth taxes. What we are talking about would effectively be an imperfect wealth tax, because it would be a tax on that proportion of wealth that relates only to residential property and it would not be comprehensive. For that reason, there would be people who were asset-rich but cash-poor, such as widows, who would have to think through the consequences.
Moving towards a more periodic review of values poses the question of how that revaluation would take place. Certainly, some of us are shy of algorithms, but in all likelihood, unless we were to recruit an army of estate agents-meet-inspectors, we would be using some algorithmic method. In fairness, colleagues on both sides have talked about the status quo, but there would also potentially be unfairness in a mechanistic approach.
Tim Farron
The Minister is being incredibly generous in giving way. In the short time available to him, he is providing a thoughtful critique of the proposal that has been put to him, and he is entitled to do that. He correctly says that none of the parties represented here is saying that this will definitely be in their manifesto, although I think we should all consider it. However, I would love him to consider the fact that the Fairer Share approach is cross-party. The people who have been advocating for the Government to think about this have made an extensive critique of council tax and how unfair and outdated it is. On the table is something that is potentially better. I would love the Minister to look again at council tax to see whether there are ways in which he could make it fairer.
Andrew Griffith
I hear the hon. Gentleman, and I look forward to reading his manifesto—whether it is for his party or for the coalition that his party and the Labour party both seem very keen on.
As we think about proposals, we must think about democracy and about the potentially disempowering impact on local government, of which I suspect that most colleagues are strong advocates. There is also the issue of accountability. My hon. Friend the Member for Hartlepool (Jill Mortimer) talked about the debate going on in Hartlepool, and I suspect that it is one of the livelier debates that local people are having. However, it would not be able to take place if these things were simply set in Whitehall and the money was distributed algorithmically.
My hon. Friend the Member for West Dorset (Chris Loder) talked a little about the compensating mechanisms of revenue support grant. The Government are levelling up in many ways, but that is another way in which we can seek a fairer outcome for our constituents.
Chris Loder
Will the Minister consider reviewing that for the Dorset Council area so we have fairness for our constituents?
Andrew Griffith
I am quite sure that my hon. Friend, who is an effective champion for his constituents, will continue to prosecute his case, but he will understand if I do not give that commitment here and now.
My hon. Friend the Member for Barrow and Furness and others talked about second home ownership. We understand that, and I have a proportion of second homes in my own constituency. As colleagues know, proposals on the table in the Levelling-up and Regeneration Bill would allow councils local and democratic discretion to attract a council tax premium that goes some way to address that issue. However, we should be cautious. Those homes already bring a disproportionate amount of net benefit to local councils, simply because they pay the full rate of council tax, but do not consume at the same intensity. The ability to have them pay double will increase that further.
Let us remember that this is not a simple issue. The work-from-home, hybrid economy blurs the line. Hon. Members—probably almost uniquely as a group—understand that people may work in one place and live in another, so the line between a first and a second home can be blurred. We should be cautious about discriminating on tax grounds against the person who chooses to work and rest in two different places, in two small homes, rather than in a single home of equivalent value. I offer that to hon. Members as a potential mitigant as we think about this issue.
Today, we have heard some thoughtful proposals, and a number of points have been made on both sides. In conclusion, these issues are important, and there are real consequences not only for our constituents, but for the housing market, in which, as one hon. Member said, there is already substantial intervention. We need to think through the unintended consequences at every point. Help to downsize would be one potential benefit for us all.
The Government will continue to act where appropriate to do so. I thank hon. Members for their thoughtful contributions. In securing the debate, my hon. Friend the Member for Barrow and Furness has allowed us to hear a variety of different contributions from all parts of the House. The Government will keep listening on this important topic.
Simon Fell
I shall not sum up further than the Minister has so ably done already, other than to thank you, Mrs Harris, for chairing and to thank Members from both sides of the House for putting politics to one side, embracing an idea and fighting for it. From Fife to Dorset, and from Cumbria to Durham, I think we have put together a rainbow coalition in support of reform. I am glad my hon. Friend the Minister is listening to the calls for reform. We have a piece of work to do to convince him about the democratic deficit of the proposals, but I am convinced we can do it.
Carolyn Harris (in the Chair)
Before I put the question, I thank all Members for their discipline and consideration this afternoon in making sure that all who wanted to speak had an opportunity to do so.
Question put and agreed to.
Resolved,
That this House has considered the matter of alternatives to Council Tax and Stamp Duty.