29 June 2023

Living longer with the Proportional Property Tax

By Andrew Dixon

The debate surrounding tax reform options is intensifying ahead of the next General Election, compelling both the Government and Opposition to grapple with the challenge of maintaining fiscal balance in the face of higher inflation, growing inequality, and aging populations. Inheritance tax, income tax, corporation tax have all become topics of daily discussion but there is one area that deserves more attention: property tax. Stamp Duty and Council Tax have become outdated and are having a significant impact in the marginal seats that will be at the centre of the election battle. 

Stamp Duty is restricting the opportunity for families to get onto the housing ladder, exacerbating the housing crisis by discouraging house purchases, contributing to under-occupation of certain properties, and slowing down the overall market. And Council Tax is in dire need of reform. Research conducted by the TaxPayers’ Alliance revealed that the average band D Council Tax bill in England has more than tripled since its introduction 30 years ago, representing an increase of 79% in real terms. The consequences of this rising and regressive tax are far-reaching. It diminishes disposal income, adds to already high housing costs, and exacerbates inequalities in local government funding. Disturbingly, all these issues have a knock-on impact on health and life expectancy as well.

A new report from Fairer Share released this week with WPI Economics highlights a startling correlation: even a 0.2% increase in the burden of Council Tax is associated with a one-year reduction in average life expectancy. The impact of this in practice can be seen in the comparison between County Durham and Westminster. In the former, Council Tax bills average 1.15% of property value, while in the latter, it is a mere 0.06%. Life expectancy in County Durham is seven years lower for men and six years lower for women compared to the area surrounding Parliament. 

Amidst the ongoing cost-of-living crisis, politicians are overlooking a revenue-neutral tax reform that could make a difference. This reform involves abolishing both Council Tax and Stamp Duty, replacing them with the Proportional Property Tax, which would primarily benefit those residing in the poorest and least healthy areas. Under the new system, 18 million households would pay less compared to the current Council Tax rates, resulting in £6.5bn in savings for Council Tax payers outside of central London. Every region in the UK except London would experience savings on property tax, ranging from £143 per year per household in eastern England to £615 in Yorkshire, Humber, and the north-east.

By increasing the disposable incomes of those most in need and poorest in health, this shift in tax policy has the potential to reduce inequality and improve health outcomes. It is crucial that a transition to the Proportional Property Tax be included in party manifestos. Voters should no longer be expected to endure the burden of regressive property taxes, particularly when these taxes have the potential to compromise the health, the well-being, and the financial stability of both themselves and their families.

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Andrew Dixon is Chairman of Fairer Share.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.