An overlooked argument for property taxes

More sensible taxation of property could reduce the problem of unaffordable house prices.

The trouble with talk about taxes is it's all bluster. The Daily Mail talks with glee of Eric Pickles discontinuing a database that could have allowed the revaluation of council tax bands. Yet the article fails to mention some key points, not least those 3.7 million households worse off as a result of our failure to revalue council tax, or that hard-pressed homeowners in London effectively pay a much lower proportion of the value of their homes in tax.

There's something about the value we attach to our homes that seems to generate an especially strong emotional response when the words "tax"and "property" are used together. Which is odd, as council tax fell from 0.7 per cent of a property's value in 1993-94 to 0.5 per cent in 2006-07. And that brings me to my next point - fairness. Most of this difference in how much of a property's value was taxed will have been capitalised into higher house prices. This benefits existing owners at the expense of first-time buyers, bringing us to a situation where 80 per cent of first time buyers get assistance with deposits. We also have a government-backed mortgage indemnity scheme to allow people to buy property with a higher loan-to-value ratio, targeted at new-build homes which are generally more expensive to buy.

So, despite the noise everyone makes about housing affordability, especially in London, you'd be hard pressed to find much discussion about how more sensible taxation of property could help our problem with unaffordable house prices. Discussion tends to focus more on why unearned house price gains aren't homeowners "fault" - but there lies the main argument for taxing property (or for that matter, land). Anyone who bought their property in 1994 didn't earn that 250 per cent increase in the value of their home between 1994 and 2008.

A mansion tax would be aimed at £2m-plus properties. But without a revaluation and extra council tax bands between £320,001 and £2m, it wouldn't solve this fairness problem. It would just mean £2m-plus mansions get a bit cheaper for the rich to buy. At the moment those with a property at the lowest point of the top band (£320,001) are liable for twice the tax of a Band D property (£68,001) even though their property's value is actually 4.7 times more. Now, even allowing for subjective definitions of fairness, does that sound fair to you?

So how do you make the system fairer? Well, you could regularly revalue council tax so that it more accurately reflected property prices, moving to a tax based on a percentage of the property's value. Of course, whilst you would hope such a tax might avoid the hoarding of housing highlighted by The Intergenerational Foundation, it wouldn't have to force pensioners out of their homes. To deal with any hardship faced by the asset rich but income poor, taxes could be deferred until the property was sold, or we could have a rebate system as we do now for those who can't afford to pay their council tax bills.

A growing number of commentators including the Institute for Fiscal Studies and the Joseph Rowntree Foundation, suggest we need to reconsider property taxes. If we need to raise revenue to pay off the deficit and keep the economy growing, property taxes are well worth a look. And with a potential £10.6bn in missed revenue in 2009, which could have been ring-fenced to fund new homes, let's hope the plight of all those locked-out first-time buyers isn't ignored.

Kathleen Kelly is a Programme Manager for Place at the Joseph Rowntree Foundation

Kathleen Kelly is Programme Manager for Place at the Joseph Rowntree Foundation, the anti-poverty think tank.

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After a year of division, a new centre is emerging in Labour

Clive Lewis, Lisa Nandy and Jonathan Reynolds show how factionalism is being transcended. 

On 26 September, Clive Lewis sat onstage at Labour’s conference in Liverpool and puffed out his cheeks in exasperation. He had just been informed that a line in his speech as shadow defence secretary committing the party to Trident renewal had been removed by Jeremy Corbyn’s office. Such was his annoyance that he was said to have later punched a wall in anger ("I punched no walls," he told me when we recently met). 

For Lewis, however, the feud proved to be a blessing. Hitherto hostile MPs hailed his pragmatism and deference to party unity (he is a long-standing opponent of Trident renewal). The former soldier also affirmed Labour’s support for Nato and for collective self-defence. “The values that underpin Nato are social-democratic values: liberty, democracy, freedom of expression,” Lewis, an early Corbyn ally, told me. “Let’s not forget, it was Clement Attlee and the New Deal Democrats who initiated and set up Nato. It’s about being in it to win it. It’s about winning the arguments inside Nato and making sure that it’s a force for good. Some people would say that’s impossible. I say you’ve got to be in it to be able to make those changes.”

In October, Lewis was replaced as shadow defence secretary by Nia Griffith and became shadow business secretary. Many regarded the appointment as a punishment. “Do I think there was an ulterior motive? I’ll never know,” Lewis said. “I’m confident that the reason I was moved – what I was told – is that they wanted me to be able to take on a big portfolio.”

Whatever the truth, Griffith has since said that Labour’s next general election manifesto will include a commitment to Trident renewal and will support multilateral, rather than unilateral, disarmament.

Many MPs had long feared that the divide between them and their leader would prove unbridgeable. Some contemplated standing on bespoke manifestos. Yet with little drama, Corbyn has retreated from a conflict that he could not win. Labour’s conference, at which the largely pro-Trident trade unions hold 50 per cent of the vote on policy and which the leader has vowed to respect, would never have endorsed unilateralism.

“Jeremy Corbyn deserves credit for that,” Lewis said. “Everyone understands that his position hasn’t changed. He still believes in unilateral disarmament . . . But he’s also a democrat, and he’s a pragmatist, despite what people say.”

In policy terms, at least, Labour will contest the next general election as a less divided party than many anticipated. As Corbyn’s team has long emphasised, there is unity around issues such as opposition to spending cuts and support for rail renationalisation. A new centre for Labour, embodied by Lewis, is emerging.

“When I became an MP,” the 45-year-old told me (he was elected in Norwich South in 2015), “to be anti-austerity, to say that cuts don’t work and they’re bad economics, meant you weren’t in touch with reality, and that you had no interest in winning elections. Within the space of 18 months, there’s now a growing consensus that cuts aren’t the way forward and that we need an industrial strategy.”

Theresa May’s support for new grammar schools and “hard Brexit” has given Labour MPs other issues to unite around. After Corbyn’s second landslide leadership victory, many of his opponents have reached the final stage of grief: acceptance. Others, as Lewis noted, are imbued with “an eager enthusiasm to make this work”. Contrary to some predictions, more than half of the 63 frontbenchers who resigned last summer have returned.

An emblematic figure is Jonathan Reynolds. The Liz Kendall supporter, who resigned as shadow transport minister in January 2016, has rejoined the front bench as shadow City minister. Earlier this year, Reynolds backed the introduction of a universal basic income, an idea that is now being explored by John McDonnell’s team (and that Barack Obama has called for “debate” on). In July, Reynolds and Lewis wrote a joint piece in support of proportional representation (PR), warning that without it “a more equal, democratic and sustainable society is less likely”.

Another advocate of PR is Lisa Nandy, the former shadow energy secretary and a friend of Lewis (on 26 October, along with Reynolds, they called for Labour to stand aside in the Richmond by-election to aid the Liberal Democrats). In the view of some, the defining divide in Labour is no longer between left and right but between open and closed. On one side are pluralists such as Lewis, Reynolds and Nandy, while on the other are tribalists such as Ian Lavery (pro-Corbyn) and John Spellar (anti-Corbyn).

The division stretches to the top, with McDonnell in favour and Corbyn opposed. “It’s a work in progress,” Lewis said of his efforts to convert the Labour leader. “There’s a growing movement of MPs who now either support PR or understand the growing necessity for it. They may not be quite there themselves, but they’re moving in that direction.”

At times since Corbyn became leader, the parliamentary party’s divisions have appeared to many to be insurmountable, even as the party in the country has grown and been inspired by Corbyn. Yet a new consensus is being forged in the PLP: anti-austerity, pro-Trident, pro-Nato and, increasingly, committed to political and constitutional reform. If there is any consolation for a becalmed Labour Party, it is that its European counterparts are faring little better. In Spain, France and Germany, an already divided left is further fragmenting.

But Labour is likely to both fight and survive the next general election as a united force. If Lewis can retain his seat in Norwich (he has a potentially vulnerable majority of 7,654), he could one day act as the bridge between the party’s “soft” and “hard” left. After a year of factional skirmishes, the common ground in which Labour’s future will be shaped is emerging.

George Eaton is political editor of the New Statesman.

This article first appeared in the 27 October 2016 issue of the New Statesman, American Rage