Prime Minister Andy Burnham has moved to calm speculation over the future of council tax and Stamp Duty, confirming that his government has no immediate plans to replace either tax. This will come as welcome news for the housing industry, as rumours of major property tax reforms ahead of the Autumn Budget often lead buyers and sellers to hit pause on their moving plans.
While reform is not on the immediate agenda, it has not been ruled out entirely. Burnham has previously expressed support for reviewing the current system, suggesting the debate is far from over. For now, however, the government appears keen not to derail the property market.
One of the most widely discussed alternatives comes from campaign group Fairer Share, which proposes replacing council tax with a proportional property tax. Under its proposals, homeowners would pay an annual charge equivalent to 0.48% of the value of a property, rising to 0.96% for second homes.
Fairer Share argues that the current council tax system is outdated as it is based on property valuations from 1991, meaning bills often bear little relation to what homes are worth today and do not reflect what people can afford. The group estimates that households currently pay £35 billion in council tax each year, while the wealthiest 10% of households own around 38% of the country’s property wealth but contribute less than 28% of property taxes. The campaign claims that the reforms would make homeownership more affordable for younger buyers and increase disposable income for millions of households.
The wider proposals also include replacing Stamp Duty with a land tax, although the focus of this analysis is on the proposed proportional property tax and how it compares with today’s council tax bills.
To understand the argument, let’s start with a simple comparison. Take a typical two-bedroom terraced house in Blackpool, and another in London. Despite the London property being worth seven times more, the difference in their council tax bills is surprisingly small, and, in fact, the property owner in Blackpool pays more than the one in London.
This example highlights the argument behind the Fairer Share scheme. Under the current council tax system, homeowners with significantly more valuable properties can pay similar, or even lower, council tax bills than those living in homes worth a fraction of the value.
We carried out analysis to assess how homeowners across the UK would fare if council tax were replaced with Fairer Share’s proposed proportional property tax. Unsurprisingly, the results broadly reflect expectations; London would bear the brunt of such a reform in tax change.
The analysis shows that every region, with the exception of Inner London, would pay less under Fairer Share’s proposed proportional property tax than under the current council tax system.
Inner London would be the only region overall that would be worse off. The average annual council tax bill of £2,055.55 would rise to £3,198.53 – an increase of £1,143.48.
In contrast, homeowners in Outer London would see little difference. The average annual bill would remain broadly unchanged, moving from £2,422.96 to £2,420.63.
At the other end of the scale, the North East would benefit the most. The average annual bill would fall by £1,125.64, from £2,026.53 to £900.89. Wales would see the second-largest reduction, with average households paying £1,073.68 less each year.
Implementing Fairer Share’s proposals would raise a number of challenges.
1. Funding local authorities
One of the biggest questions is how local authorities would be funded. Council tax is currently collected by local councils and forms a significant part of their income. If proportional property tax was retained locally, there would be winners and losers. Authorities in high-value areas such as London would collect substantially more while lower-value areas would see a significant drop in income.
This would ultimately lead to revenue being redistributed centrally. In this scenario, difficult questions arise over how funding should be allocated. Some areas would subsidise councils elsewhere, which could cause some contention.
2. Keeping property values up to date
The proposals would also require properties to be valued on a regular basis. How frequently should this occur? Who would carry them out? And what happens when disputes arise?
3. Asset-rich, cash-poor households
A value-based property tax could create challenges for homeowners who have seen their property’s value rise significantly but whose incomes have not. Those who have inherited homes or lived in their property for a long time may struggle to pay for larger tax bills.
4. Discouraging home improvements
Linking tax directly to property value could also reduce the incentive to invest in a home. Homeowners considering an extension, loft conversion or major renovation may think twice if the end result is a higher tax bill.
Council tax criticism isn’t going away any time soon. Whether Burnham chooses to review it or not during his term in office remains to be seen. Our analysis shows London would be the clear loser if the Fairer Share scheme was implemented, yet its long been argued that the current system is unfair on the North and Midlands. Whatever the outcome may be, it’s an interesting debate, nevertheless.
The analysis compares average regional council tax bills with the average cost of a proportional tax based on regional property values. While it highlights the broad impact of the reform, individual outcomes would vary greatly depending on the value of each property.