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Property tax reform
would raise £3 billion while making the system fairer and more
progressive
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Four out of five
households would see their council tax fall by an average of 3
per cent
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Only the top 10 per cent
of homes would see their council tax
increase
The Institute for Public Policy
Research (IPPR) has today set out a plan for property tax reform
that would cut council tax bills for four in five households
while making the system fairer and raising revenue to fund vital
public services.
The current council tax system is
outdated and regressive, with those in lower-value homes paying
far more, proportionally, than those in the most expensive
properties, say the authors of the research. For instance, a
property in Kensington today pays less council tax than one in
Blackpool. These reforms would make council tax fairer,
reflecting the principle that those who have gained most from
rising property wealth contribute
more.
The think tank says that, in the long
term, Britain should move towards a Proportional Property Tax
(PPT), linking tax liability directly to property value and
creating a fairer, more efficient
system.
In the short term, IPPR suggests
raising tax on bands F and G by 50 per cent and on the top band H
(homes likely to be worth more than £1.5 million today) by 100
per cent, to raise £3.9 billion.
Around £1 billion of this revenue
should be used to cut council tax bills for bands A to D. This
would give an average saving of £45 to 80 per cent of
households.
Bands F to H correspond to homes worth
more than £120,000 in 1991, or over £600,000 today. These are
concentrated in London and the South
East.
However, IPPR says in its paper
published today that to maintain fairness, asset-rich but
cash-poor households should be able to defer or smooth
payments.
Alongside this, IPPR proposes a rise
in the non-resident buyer surcharge – from 2 per cent to 6 per
cent – to deter speculation in the housing market and make the
system fairer. This should be combined with incentives for
non-resident investors to move to and work in the
UK.
The UK has a distinct problem with
overseas buyers using UK homes as a store of value but
contributing little further investment to the UK economy other
than driving up house prices.
The think tank says this
“anti-speculation tax” would be a popular and symbolic measure,
following examples in Canada where such policies have helped cool
overheated markets and supported resident first-time
buyers.
Aditi Sriram, economist at
IPPR and lead author of the IPPR paper,
said:
“The current council tax system is
unfair, inefficient, and long past its sell-by date. Our proposal
cuts bills for the vast majority of households while asking those
with the greatest property wealth to pay a fairer share. It's a
reform that supports working families, strengthens local
services, and lays the foundations for a fairer tax
system.”
Carsten Jung, IPPR associate
director for economic policy and co-author of the report,
said:
“This reform can be a first step
towards taxing property in a more balanced way. Millions of
families would see a small decline in their bills – especially in
less prosperous parts of the country – with more to come if the
government go for further reform. This is exactly the kind of
policy we should expect from a government relentlessly focussed
on reducing the cost of living.”
ENDS
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3. TABLE: Council tax bands
and proposed changes
in England (see
attached)
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4. Revenue estimates are based on
the number of households in each council tax band and region in
England, using the 2024-25 average council tax bill of £2,280.
The total raised from increasing rates on higher bands uses the
IFS estimate that a 50 per cent rise on bands F-G would raise
around £3.5 billion. Additional revenue from doubling band H
was calculated using the Tax Policy Associates council tax
reform calculator, to produce the total figure cited. Estimates
of misbanded properties draw on IFS analysis on percentage of
homes which are incorrectly valued, equivalent to roughly
10,000 households. The revenue impact of raising the foreign
buyer surcharge is based on around £120 million raised annually
since 2021 at 2 per cent and assuming high
elasticity.
