A council tax isn't a wealth tax

How should the government settle the inequalities in property wealth?

Very important, this one: the council tax isn't a wealth tax. That's a claim I've seen repeated around the place with relative frequency recently, most notably in Polly Toynbee's Guardian column today. She writes:

Wealth taxes only deliver 5.9% of revenues, mostly in council tax (which often falls on renters, not owners). Inheritance tax brings in just 0.5%, only paid by 3% of estates, halved since Labour unwisely doubled couples' exemption: it's the most avoided of all.

As she says, the incidence of council tax falls on the occupier, not the owner. If you have very little wealth but high income, you may rent a Band-H house and end up paying the same council tax as someone with very high wealth and very low income.

In practice, then, council tax is a tax on residency, not on property wealth and certainly not on wealth overall. (Legally, it's not quite that simple. A lease is still a form of ownership, so it's not quite the case that non-owners are taxed.)

It may be the case that, at the top end, that doesn't matter. If we were to introduce the "mansion tax" by adding a new band on top of council tax for properties over £2m, for instance, there would be few renters hit. But even then, there would still be some.

The distinction is important to make, because as the movement for a true mansion tax—or better still, a land value tax—grows, the opposition will try to claim that what we already have is good enough. It isn't.

The inequalities in property wealth are astronomical. A chart put together by researcher Andy Whightman makes that astoundingly clear. He writes:

This data was obtained from the Office of National Statistics by Faiza Shaheen of the New Economics Foundation and shows the average net property wealth for each 1% of the income distribution. The top 1% of the population has net property wealth of £15,040,000 whilst the bottom 33% has nothing. The top 1% own more net property wealth than the rest of the 99% combined.

But there's another way the government could take advantage of the discrepancies in property wealth to earn some income, settle the housing market and reduce inequality. Michael Darrington, former CEO of Greggs, writing in the Telegraph today, suggests a £100bn housebuilding programme funded by quantitative easing. But in focusing on the revenue source, he's missed the most impressive part of his plan, because he also suggests that:

While there are plenty of suitable sites for building already available, a programme on the scale I envisage would clearly require more.

One way to achieve this would be through the compulsory purchase of farmland at a sensible multiple of its agricultural value—say three or four times—which would give farmers a very good profit but not the lottery-winning values currently ascribed to development land.

But rather than the expensive and illiberal procedure of compulsory purchase, there's a more radical option available. As Darrington implies, land with planning permission is worth more than land without—a lot more. Frequently well over 20 times as much, in fact. And the institution with the power to convert land without planning permission into land with planning permission is the same one trying desperately to build houses.

In other words, an entire housebuilding program could probably be funded on the difference between the purchase price of agricultural land and the sale price of land with planning permission.

Councils could buy up agricultural land, award themselves planning permission, build houses, and sell some off while keeping the rest for social housing. In fact, such is demand for land with planning permission, they wouldn't even need to build them; they could just sell the land without houses, but insist that part of the sale price be that some houses built on the land be used for social housing.

In fact, councils wouldn't even need to buy the land. They could just grant planning permission with the same requirements on more land than they have been now. Because the real bottleneck is there, and not really with housebuilding at all.

Former council houses, refurbished and made energy-efficient. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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In your 30s? You missed out on £26,000 and you're not even protesting

The 1980s kids seem resigned to their fate - for now. 

Imagine you’re in your thirties, and you’re renting in a shared house, on roughly the same pay you earned five years ago. Now imagine you have a friend, also in their thirties. This friend owns their own home, gets pay rises every year and has a more generous pension to beat. In fact, they are twice as rich as you. 

When you try to talk about how worried you are about your financial situation, the friend shrugs and says: “I was in that situation too.”

Un-friend, right? But this is, in fact, reality. A study from the Institute for Fiscal Studies found that Brits in their early thirties have a median wealth of £27,000. But ten years ago, a thirty something had £53,000. In other words, that unbearable friend is just someone exactly the same as you, who is now in their forties. 

Not only do Brits born in the early 1980s have half the wealth they would have had if they were born in the 1970s, but they are the first generation to be in this position since World War II.  According to the IFS study, each cohort has got progressively richer. But then, just as the 1980s kids were reaching adulthood, a couple of things happened at once.

House prices raced ahead of wages. Employers made pensions less generous. And, at the crucial point that the 1980s kids were finding their feet in the jobs market, the recession struck. The 1980s kids didn’t manage to buy homes in time to take advantage of low mortgage rates. Instead, they are stuck paying increasing amounts of rent. 

If the wealth distribution between someone in their 30s and someone in their 40s is stark, this is only the starting point in intergenerational inequality. The IFS expects pensioners’ incomes to race ahead of workers in the coming decade. 

So why, given this unprecedented reversal in fortunes, are Brits in their early thirties not marching in the streets? Why are they not burning tyres outside the Treasury while shouting: “Give us out £26k back?” 

The obvious fact that no one is going to be protesting their granny’s good fortune aside, it seems one reason for the 1980s kids’ resignation is they are still in denial. One thirty something wrote to The Staggers that the idea of being able to buy a house had become too abstract to worry about. Instead:

“You just try and get through this month and then worry about next month, which is probably self-defeating, but I think it's quite tough to get in the mindset that you're going to put something by so maybe in 10 years you can buy a shoebox a two-hour train ride from where you actually want to be.”

Another reflected that “people keep saying ‘something will turn up’”.

The Staggers turned to our resident thirty something, Yo Zushi, for his thoughts. He agreed with the IFS analysis that the recession mattered:

"We were spoiled by an artificially inflated balloon of cheap credit and growing up was something you did… later. Then the crash came in 2007-2008, and it became something we couldn’t afford to do. 

I would have got round to becoming comfortably off, I tell myself, had I been given another ten years of amoral capitalist boom to do so. Many of those who were born in the early 1970s drifted along, took a nap and woke up in possession of a house, all mod cons and a decent-paying job. But we slightly younger Gen X-ers followed in their slipstream and somehow fell off the edge. Oh well. "

Will the inertia of the1980s kids last? Perhaps – but Zushi sees in the support for Jeremy Corbyn, a swell of feeling at last. “Our lack of access to the life we were promised in our teens has woken many of us up to why things suck. That’s a good thing. 

“And now we have Corbyn to help sort it all out. That’s not meant sarcastically – I really think he’ll do it.”