Matthew Sinclair

Why property tax rises aren’t the answer

Why property tax rises aren't the answer
Text settings

When Tim Montgomerie first started calling for new wealth taxes I was horrified. Sweden has only just abolished its wealth tax after seeing hundreds of billions of kroner leave the country in capital flight over a number of years. Other countries have found wealth taxes are associated with narrow bases, high costs of collection and often very unfair treatment for different classes of assets. We should not replicate that here.

As his proposals have been refined though, it isn’t that bad. More bands would be a relatively reasonable way of making the Council Tax system more progressive. It might require a revaluation which would be politically toxic, and it would be a shame to take Council Tax further from being a simple charge towards local services — but it certainly wouldn’t create the horrible economic consequences of higher marginal rates on income or an outright wealth tax.

His article for The Times (£) this morning though goes further and sees greater taxes on ‘wealth’ (but this appears to actually mean property) financing substantial tax cuts elsewhere. That is a great objective, but looking at the figures it seems unrealistic.

The Government are currently working very hard to reduce people’s real terms council tax bills with support for a freeze. They have been working with the best local authorities — and brilliant Town Hall leaders like Eddie Lister, Stephen Greenhalgh and David Burbage — to reverse the near doubling of the tax that has taken place over the last decade. The public rightly loathe the tax and it hits elderly people on low incomes particularly hard. To the extent that you increase rates for high value properties, I think there would be a strong demand from councils and the public for that revenue to be left with local authorities to reduce council tax for other households, not extracted by central government in lower grants in order to reduce income taxes.

The early Thatcher-era rebalancing of the tax system towards taxing consumption instead of income — whether it was right or wrong — has left Britain roughly in line with the European norm in terms of consumption tax rates. I don’t think that would be the case with much higher property taxes.  According to the OECD Revenue Statistics, Britain already raises more from property taxes than any other developed country:

Tax reform is absolutely critical to creating the conditions in which we can expect long term economic growth. At the TaxPayers’ Alliance we are currently working with the Institute of Directors on a major investigation of how it could best be achieved: the 2020 Tax Commission, chaired by Allister Heath. I don’t think a substantial increase in council tax revenues, even if the burden is focused on high value property, is the answer though.

Matthew Sinclair is director of the Taxpayers' Alliance.