Chancellor Rachel Reeves is considering a new tax on the sale of homes worth more than £500,000 as a step towards a "radical" overhaul of stamp duty and council tax.
Treasury officials are reportedly looking at how a new "proportional" property tax, which would replace stamp duty on primary homes, could be implemented, said The Guardian. They are also studying whether a local property tax could then replace council tax in the medium term "in an effort to repair battered local authority finances".
Reeves is under "significant pressure" from Labour MPs and ministers to raise taxes on wealth, while sticking to the party's election pledge not to touch income tax, VAT or National Insurance, said the Financial Times. Treasury officials are "racing" to find reforms that boost growth, amid warnings that a £10 billion hole could open in the government's fiscal plans following weaker than expected productivity forecasts.
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Officials have "downplayed" the idea of a new wealth tax, backed by figures like former Labour leader Neil Kinnock, arguing that it would be too complex and slow to introduce. But Reeves "has not excluded raising or changing existing taxes" and has long argued for "fundamental reforms to the way Britain taxes property". In a 2018 pamphlet, she argued that council tax "is at the very least long overdue a re-evaluation and revision of existing bands".
The plans could potentially provide "valuable political cover" for Reeves by raising extra revenue for the Treasury without breaking Labour's manifesto pledge to not raise taxes on working people, said The Guardian. Yet while organisations such as the Institute for Fiscal Studies say that increasing council tax rates could bring in close to £3.5 billion for the Treasury, it also risks a "ferocious backlash among some homeowners", said the FT.
And opposition to the national property tax is already surfacing. Estate agent Simon Gerrard told The Independent that such a move would amount to a "tax on ordinary Londoners". He argued that the threshold should be higher in London, where the average property price is more than £650,000. "It's already nearly impossible for normal people to start a family in London as it is. This London tax will only make it harder."
TV property show presenter Kirstie Allsopp also criticised the idea, telling Times Radio it would be "destabilising for people's homes and mortgages".
What next?
No final decisions have been made, said The Guardian. While a national tax "could be implemented during this parliament", any reforms to council tax "would take longer, at least requiring Labour to win a second term in office".
And any changes to stamp duty that Reeves might be tempted to make in the Autumn Budget "would entail short-term revenue losses as the new system bedded in over a number of years", said the FT.
"She needs money upfront and she has fiscal rules to hit," said Tim Leunig, a former government adviser and now chief economist at Nesta, a UK innovation charity. "However, reforming this country's crazy property tax system is a laudable goal that would raise economic growth in the medium term."
