Council Tax and Stamp Duty Alternatives

Carolyn Harris Excerpts

Wednesday 17th May 2023 Westminster Hall

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[Several hon. Members rose—]

[Carolyn Harris (in the Chair)]

Order. Unfortunately, we are now down to two minutes for each speaker.

--- Later in debate ---

[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.

[Carolyn Harris (in the Chair)]

I call Mary Robinson.

[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.

[Carolyn Harris (in the Chair)]

Thank you very much. I call Chris Loder.

--- Later in debate ---

[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.