Industry Views - The one Property tax Labour really should change

In the later stages of an election when the Conservatives’ best chance of success is forcing an own goal by Labour, it is understandable that Sir Keir Starmer is - to say the least - cautious.

With the Tories alleging numerous hidden tax threats by Labour (while being predictably coy about the tax rises required to fund their own programme), every day seems to bring a denial by one of Starmer’s team, naming another tax the party will not raise if it wins on July 4.

So far, so predictable - and desirable, insofar as very few of us wants to pay more tax. 

But the ruling out of one tax change (yes, a change rather than rise) is a real disappointment, especially as Labour looks odds-on to win the sort of thumping majority that would allow it to do something radical.

I am of course talking about council tax.

Scrap council tax

There is little or nothing about the current method of council tax that commends itself to a 21st Century economy. 

It is based on a hypothetical value of property in 1991; it is highly regressive; and tying tax to property ownership means councils in dense urban areas benefit from higher revenue than those in less populous areas where distance and remoteness may make services more expensive to run and not less.

It’s become something of a cliche to say that the most expensive Band H properties in the likes of prime central London pay less council tax than modest Band D properties in, say, Northumberland. 

There are two ways out of this unfairness but neither the Conservatives nor Labour show any willingness to adopt them.

The first would be to scrap council tax completely and replace with a Proportional Property Tax, of the kind put forward by the Fairer Share Campaign.

The campaign proposes a Proportional Property Tax as a single flat rate charged annually at 0.48% of a property's value: this specific figure is what is required to raise the same amount overall, as that raised by current council tax bands.

The PPT would be collected by central government and distributed to local councils; the same happens now (on a smaller scale) with central government grants to top up council tax income. There may be arguments over which councils deserve more, or less, of the overall PPT cake, but the charge levied on the individual property owners would be much fairer than the current council tax. 

The second, and arguably simpler, way out of the current absurd system is to keep council tax in principle but modernise and revalue the bands.

The Institute of Fiscal Studies (the independent think tank often quoted by political parties when it suits them) calculates that as a result of house price changes since 1991, at least half of the housing stock is now effectively in the ‘wrong council tax band’.

Considered untouchable

It says households in the North and Midlands are often in too high a band – and pay too much – while those in London and its environs too low a band – and pay too little – compared to what they would under a modernised tax. In the language of the current government, council tax, therefore, works against levelling up.

Therein lies the rub, of course, where political parties are concerned.

Anything that involves some people paying more tax is considered untouchable, at least at election times. 

That’s why the current Conservative government has been so skilful at allowing tax revenue to increase by keeping so many thresholds static: the taxes themselves may have remained the same but the number of people paying them has soared as incomes have taken people into higher thresholds.

But to say in an election campaign that council tax will be revalued (let alone replaced) opens the floodgates to scare stories about how much more some people will pay, while predictably giving less attention to how much less others will be charged.

The irony is that there’s plenty of evidence that council tax is wildly unpopular, not least because it appears to have been rising just at the time that many householders have seen council services decline, or additional charges levied at the point of use.

Council tax reform really is there for the taking. If Starmer is elected, will he use the predicted thumping majority to make this once in a generation change?

Logic says Yes: but this is politics, after all.