Last week, Chancellor Rishi Sunak announced the budget for 2021. Conspicuously missing from his speech were reforms to Council Tax and Stamp Duty amidst growing calls for a fairer property tax system. Over the past year we’ve been working with campaign group Fairer Share to push for a tax system that helps to reduce the growing inequalities we face as a society, rather than add to them.
| A PICTURE OF INEQUALITY
The reality is that inequality in the UK is extremely high. Since rising rapidly throughout the 1980’s, high levels of income inequality have remained fairly unchanged for much of the last 30 years, save for incremental rises through the 2010’s. The pandemic — and the political response to it — now runs the risk of creating the highest levels of income and wealth inequality in the post-war era.
Over the past 12 months, many of the UK’s richest have seen their wealth boom through sustained — or in many cases improved — income and capital gains, while saving plenty of money through their reduced consumption. For those on lower-incomes, the pandemic has brought an entirely different reality — one of job losses, reduced working hours, furlough, and mounting debt.
A particularly worrying aspect of UK inequality is its geography. To an extent, the disparity between the North East and London can be understood by looking at house prices in the two areas. In London, the average house price is now just short of £500,000, compared to the North East which has an average house price of £140,000. While housing supply (or lack of) and foreign investment has always played a role, the varying purchasing power between regions has never been this stark.
By one measure, the UK has the worst regional inequality in the developed world:
| TAXING THE WRONG PEOPLE
There are many factors which feed the varying inequalities in the UK, but one of the least discussed is the impact of our Council Tax system. Council Tax has become more and more regressive almost every year since it was introduced. Based on property valuations from 1991, London’s house price surge in the 1990’s and 2000’s, combined with the ability of local authorities to increase the tax rate based on local needs, has led to a vast geographical disparity in the tax burden.
For example, Liverpool Walton is the most deprived constituency in England, and yet it has the fifth highest Council Tax burden in the country. A low-value home there can expect a tax rate around 29 times higher than a property in the most expensive Council Tax band in Kensington. Even in real terms, the cheapest home in Liverpool would only pay £200 less than the most expensive home in Westminster (sold last year for £250 million!).
Imagine for a moment how we would view income tax if the same disparity applied; the super-wealthy paying only a fraction of the tax rates faced by everyone else, and in many cases paying less in tax.
We’re taxing the wrong people — and the impact of this has been supercharged by the pandemic. Citizens Advice now estimate that over 3.5 million people are in Council Tax arrears, an increase of over 2 million since last March. As a priority debt, non-payment can lead to enforcement action including repossessions, reduced Universal Credit, and even prison time.
| WHY HAS IT NOT CHANGED?
The economic case for property tax reform has been clear for some time. Economists across the political spectrum have long been in agreement that Council Tax is “regressive, distortionary and out of date”, but politically there has been paralysis.
Largely caused by a fear of similar repercussions to the 1980’s Poll Tax where Margaret Thatcher was forced to step down as Prime Minister after mass riots, consecutive Labour and Conservative governments have sought to avoid any major reform to property taxation, even as it became more and more regressive over time.