Plans from a think tank for homeowners to pay an annual levy worth 0.5 per cent of the value of their home instead of council tax were today blasted as a ‘blunt tool’ which would ‘simply alter where the inequality is felt’.
The Labour-leaning Institute for Public Policy Research called for a ‘proportional property tax’ to tackle regional inequality – saying it was unfair that those who have benefited from soaring house prices should pay so little compared to the value of their homes.
Under their system, someone living in a house worth £1million would pay £5,000, which would almost certainly be greater than their council tax bill – meaning the policy could be seen as a so-called ‘mansion tax’, hitting those living in richer parts of the South the hardest.
And Graham Taylor, managing director at mortgages firm Hudson Rose in Stroud, Gloucestershire, told MailOnline: ‘This feels like a blunt tool which, with the best of intentions, will simply alter where the inequality is felt.
‘It is a dangerous assumption that those with larger homes must have larger incomes. Many ‘prime’ areas today were not considered as such all that long ago. The issue of council tax does need to be addressed as its current form feels woefully out of date.’
Legal experts at Wright Hassall solicitors in Leamington Spa, Warwickshire, added: ‘This could be perceived as a tax on the South.’
As well as replacing council tax, the new levy would also replace the stamp duty which people pay when they move house.
The think tank said the move would lead to a fall in house prices of 3 per cent in London and other well-off places in the south.
LOSER (BY £6,722) This five-bedroom house in France Lynch near Stroud in Gloucestershire is on the market for £2million with Whitaker Seager. The idea for homeowners to pay an annual levy of 0.5 per cent would see a £10,000 payment here. The property is within the Chalford Parish of Stroud District Council in band G, giving it a council tax rate of £3,277.74
LOSER (BY £1,530): This four-bedroom detached house is for sale near Doncaster in South Yorkshire for £1million with Portfield Garrard & Wright. Under the system proposed by the IPPR, someone living in this house would pay a £5,000 levy. The property comes under tax band H in the Doncaster Council area, giving it an annual council tax bill of £3,470.42
WINNER (BY £35)This three-bedroom end of terrace in Guildford, Surrey, is up for £500,000 with Seymours. The levy here would be £2,500. The property is in tax band E within Guildford Borough Council, giving it a council tax bill of £2,464.57
Robert Payne, director at Langley House Mortgages in Bristol, said: ‘The theory behind this is that those with more expensive homes have higher incomes and therefore can afford to pay more tax but in reality it is a lot more complex than that.
‘It’s true that people living in areas where property is more expensive are more likely to have a higher income but this is not relative to the amount of surplus income they have available.
‘Essentially, even if they have a higher income they are often faced with much larger mortgage debt and a higher cost of living, so it is unreasonable to throw further increased costs at those who may already be struggling financially.’
And Scott Taylor-Barr, financial adviser at Carl Summers Financial Services in Newport, Shropshire, added: ‘A tax based on property value has always been problematic – the value of your home is not always in line with the income you have to pay a tax.
‘Many residents in the South East, for example, who gained property via Right-To-Buy in the 80’s, are now sitting on some prime and very expensive real estate, but that doesn’t mean they have City banker size incomes to pay a sky-high tax bill based on their property’s current value.’
WINNER (BY £17): This detached part-thatch cottage in the Devon village of Broadhembury is on the market for £400,000 with Bradleys. It would have a levy of £2,000. It is within band D in East Devon Council, giving it a council tax rate of £2,016.68
WINNER (BY £79): This four-bedroom house is on with Jump Pad in Newton-Le-Willows, Merseyside, for £300,000. The levy would be £1,500. The property is in council tax band D within St Helens Council, giving it a council tax rate of £1,578.78
WINNER (BY £373): This two-bedroom detached house is for sale for £250,000 in Coalbrookdale in Shropshire, with DB Roberts. It would have a levy of £1,250. It is within band C in Telford and Wrekin Council which gives it a council tax of £1,623
One of the examples looked at by MailOnline today was a five-bedroom house in France Lynch near Stroud in Gloucestershire which is on the market for £2million.
The idea for an annual levy of 0.5 per cent would result in a £10,000 payment – but the property is within the Chalford Parish of Stroud District Council in band G, giving it a council tax rate of only £3,277.74.
Elsewhere, a four-bedroom detached house is for sale near Doncaster in South Yorkshire for £1million – which would result in a £5,000 levy for the property. It is under tax band H in the Doncaster Council area, giving it an annual council tax bill of £3,470.42.
However, in contrast, looking at a two-bedroom detached house for sale for £250,000 in Coalbrookdale near Telford in Shropshire, this would have a levy of £1,250. It is within tax band C within Telford and Wrekin Council which gives it a council tax of £1,623 – a much higher figure.
Joshua Gerstler, founder of mortgage advisers The Orchard Practice in Borehamwood, Hertfordshire, said: ‘I am not sure how this is workable as there is no daily calculation of the value of your house.
‘Is it fair that if the value of your house drops 10 per cent, so too do your payments, but if it goes up your payments go up? Council tax should be based on the cost to provide council services and your ability to pay for these services, not the value of your house.’
But Rhys Schofield, managing director at Peak Mortgages and Protection in Belper, Derbyshire, said: ‘Personally, I think it’s an absolutely brilliant idea to start to tax those that have been fortunate enough to do very well out of property price rises in the last few decades.
‘It’s fair to shift some of the burden from the shoulders of young working people living hand to mouth who are now going to be even more stretched when Natural Insurance contributions rise. In reality, though, the net losers I imagine may well be core Tory heartland voters and turkeys don’t tend to vote for Christmas.’
Shreya Nanda, IPPR economist, said: ‘The housing market has been almost entirely responsible for growing wealth inequality since the 1970s.
‘Over this period, while consumer prices have increased by a factor of 11, house prices have increased a staggering 60 times.
‘These gains should have been shared fairly across society, but instead they were captured by older, wealthier homeowners and landlords.
‘Those who did not own property during the long house price boom have been locked out, and too many face steep rents, cramped flats, and eye-watering mortgages.
‘A proportional property tax would instead ensure that these gains were shared more fairly across society.’
The IPPR said council tax was unfair because it 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.
If set at a flat rate designed to raise the same amount of tax as council tax and stamp duty combined, a proportional property tax of around 0.5 per cent could mean three quarters of households in England paying less than now.
Making the change would help tackle regional inequalities, with people living in areas with lower house prices likely to gain, compared to those in regions such as London and the South East where prices are highest.
The IPPR said it would also be fairer, with the best off paying more compared to the current system – under which the lowest earning households (by income decile) pay around twice as much council tax as the highest, as a proportion of their income.
The think tank acknowledged that there would be practical issues to address, including 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.
It calculated that a PPT would lead to the biggest house price falls – up to 3 per cent – in areas of London and the East and South East, while the 10 most affected areas, primarily in the North East and North West, could see rises of up to 11 to 15 per cent.
Last night a Treasury source said there were no plans to introduce such a property tax in the UK.