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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Sadiq Khan is probably London's new mayor - what will happen in a Tooting by-election?

There will be a by-election in the new mayor's south London seat.

At the time of writing, Sadiq Khan appears to have a fairly comfortable lead over Zac Goldsmith in the London mayoral election. Which means (at least) two (quite) interesting things are likely to happen: 1) Sadiq Khan is going to be mayor, and 2) there is going to be a by-election in Tooting.

Unlike the two parliamentary by-elections in Ogmore and Sheffield that Labour won at a canter last night, the south London seat of Tooting is a genuine marginal. The Conservatives have had designs on the seat since at least 2010, when the infamous ‘Tatler Tory’, Mark Clarke, was the party’s candidate. Last May, Khan narrowly increased his majority over the Tories, winning by almost 3,000 votes with a majority of 5.3 per cent. With high house prices pushing London professionals further out towards the suburbs, the seat is gentrifying, making Conservatives more positive about the prospect of taking the seat off Labour. No government has won a by-election from an opposition party since the Conservative Angela Rumbold won Mitcham and Morden from a Labour-SDP defector in June 1982. In a nice parallel, that seat borders Tooting.

Of course, the notion of a Tooting by-election will not come as a shock to local Conservatives, however much hope they invested in a Goldsmith mayoral victory. Unusually, the party’s candidate from the general election, Dan Watkins, an entrepreneur who has lived in the area for 15 years, has continued to campaign in the seat since his defeat, styling himself as the party’s “parliamentary spokesman for Tooting”. It would be a big surprise if Watkins is not re-anointed as the candidate for the by-election.

What of the Labour side? For some months, those on the party’s centre-left have worried with varying degrees of sincerity that Ken Livingstone may see the by-election as a route back into Parliament. Having spent the past two weeks muttering conspiratorially about the relationship between early 20th-Century German Jews and Adolf Hitler before having his Labour membership suspended, that possibility no longer exists.

Other names talked about include: Rex Osborn, leader of the Labour group on Wandsworth Council; Simon Hogg, who is Osborn’s deputy; Rosena Allin-Khan, an emergency medicine doctor who also deputises for Osborn; Will Martindale, who was Labour’s defeated candidate in Battersea last year; and Jayne Lim, who was shortlisted earlier in the year for the Sheffield Brightside selection and used to practise as a doctor at St George’s hospital in Tooting.

One thing that any new Labour MP would have to contend with is the boundary review reporting in 2018, which will reduce the number of London constituencies by 5. This means that a new Tooting MP could quickly find themselves pitched in a selection fight for a new constituency with their neighbours Siobhan McDonagh, who currently holds Mitcham and Morden, and/or Chuka Umunna, who is the MP for Streatham. 

According to the Sunday Times, Labour is planning to hold the by-election as quickly as possible, perhaps even before the EU referendum on June 23rd.

It's also worth noting that, as my colleague Anoosh Chakelian reported in March, George Galloway plans to stand as well.

Henry Zeffman writes about politics and is the winner of the Anthony Howard Award 2015.