Rachel Reeves, the Shadow Chancellor of the Exchequer, has already been preparing her defence of any future tax rises. She is laying the political groundwork for the new fall budget. Senior ministers have ordered officials to look into a new “proportional” property tax. This tax would be a welcome replacement of the existing cumbersome and economically damaging Stamp Duty regime. This national tax is aimed only at owner-occupiers selling homes worth more than £500,000. If enacted, this dramatic proposal has the potential to set a new paradigm for property taxation throughout the United Kingdom.
The four-year proposed levy would streamline property sales to ensure fair taxation practices and return neighborhoods to vibrant communities. Early estimates indicate that the new measure will apply to less than 20% of property transactions. This would be a big reduction from the current Stamp Duty which affects around 60% of all transactions. The current Stamp Duty rates vary according to whether or not you happen to be a first-time buyer. They are based on a tiered structure that escalates based on the purchase price of the property.
Yet the new property tax isn’t intended as a replacement for Stamp Duty on second homes. Indeed, in the previous fiscal year, Stamp Duty racked up a staggering £11.6 billion of revenue. Statewide and locally, revenue from primary residences can vary widely with housing market conditions.
Tim Leunig, a former government adviser, was instrumental in devising the furlough scheme introduced during the Covid-19 pandemic. He now finds himself in support of the new proposals. He contends that these improvements would increase mobility for people. This would allow them to access better employment opportunities or relocate to be nearer to family.
“These proposals would make it easier and cheaper to move house, for a better job, or to be near family, as well as being fairer. It should not be the case that a terrace house in Burnley pays more than a mansion in Kensington – and it wouldn’t be under these proposals.” – Tim Leunig
Angela Rayner, the outgoing Deputy Leader of the Labour Party, has recently expressed her concern over regional disparities. She argues that the existing council tax system exacerbates these disparities. She contends that this archaic model hits hardest on places far from rich enclaves, especially those labeled as underserved.
The current council tax system replaced the poll tax in 1993 but has been criticized for perpetuating disparities among local authorities. Rayner’s comments highlight the continued need for a more equitable allocation of investments across areas.
The government has heard these worries. To address this, they suggest that the very first step in any reform of the council tax system should be to reduce the overfunding of wealthy councils in leafy, inner-London boroughs, like Westminster, Wandsworth and Kensington and Chelsea.
“The first step would be to end the overfunding of various councils in affluent areas of inner London, particularly Westminster, Wandsworth and Kensington and Chelsea councils.” – Government
Reeves’s proposal would do all that, and still keep a sharp focus on fostering economic development. A Treasury spokesperson made the case that improving public finances must go beyond tax policy alone.
“As set out in the plan for change, the best way to strengthen public finances is by growing the economy – which is our focus. Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8 billion and cut borrowing by £3.4 billion.” – Treasury spokesperson
Although Reeves’s plan would be historic in terms of limiting the growth of property taxation, it has already faced considerable blowback. Critics argue that it could lead to substantial losses for deprived inner-city councils that rely heavily on Stamp Duty revenues. The proposed changes have sparked a debate over whether they will genuinely benefit local communities or further entrench existing inequalities.