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Call to scrap council tax in favour of property tax

·3 min read
council tax UK homes
The IPPR said a proportional property tax would more accurately reflecting the variation in house prices across England than the council tax system. Photo: PA

Think tank IPPR has called the council tax, which has been around for 30 years, “unfair and outdated”. It is urging the government to get rid of it, along with stamp duty, and replace both with a proportional property tax (PPT)

IPPR said the council tax is based on outdated property valuations, which means the amount paid on the nation’s “most expensive homes has lagged far behind their soaring values.”

Council tax helps councils pay for the services they provide, such as maintaining roads and garbage disposal. Meanwhile Brits pay stamp duty land tax if they buy a property over a certain price.

As per the current system, the lowest earning households by income decile pay around twice as much council tax as the highest, as a proportion of their income.

The IPPR believes that a property tax, set at a flat rate of 0.5%, that is designed to raise the same amount of tax as council tax and stamp duty combined could mean three quarters of households in England paying less than they currently do.

“Council tax is unfair and outdated. It’s based on property valuations from 1991 and poorer households pay a higher percentage of their property value in tax,” said George Dibb, head of IPPR’s Centre for Economic Justice.

“It’s time to replace it with something fairer: a proportional property tax would be more equitable, with all households paying the same rate and would help address regional inequalities in housing wealth. To raise the same amount of revenue as council tax and stamp duty, a proportional property tax would mean lower taxes for 75% of households.”

Read more: UK house prices fall as property market cools

The IPPR said the PPT would more accurately reflecting the variation in house prices across England than the council tax system, with the highest taxes being levied proportionately upon those with the most property wealth.

It would reduce tax bills for most households and this could stimulate the economy - with poorer households that gain from the tax reduction likely to spend more of their extra disposable income.

Existing housing could be used more efficiently, leading to fewer houses remaining empty or under-used in high demand areas of the country.

The IPPR is optimistic that the PPT would also encourage a rebalancing of property values across the country, with prices likely to fall in the long run in expensive areas compared to those elsewhere.

Challenges that could arise, as per the report, include practical issues such as coming up with a new mechanism for redistributing the increased revenue from areas where property values are high, to areas where lower values will yield less tax than under council tax.

The report has also looked at ways to soften the immediate impact on owners of high-value homes, who could otherwise see their tax bills leap overnight.

Back in July, MPs said council tax property values in England need a “long overdue” revaluation, adding that the tax had become “increasingly regressive” to the detriment of more deprived areas.

Watch: How much money do I need to buy a house?