Labour London Assembly member Tom Copley on the future of property tax.
Last week Chris Williamson left the Labour frontbench after he suggested changes to council tax that are not Labour Party policy. Jeremy Corbyn was right to ask for Williamson’s resignation: shadow ministers floating policy ideas that are not part of their briefs, particularly in relation to taxation, is a recipe for chaos. However, the question of how we should reform local taxation is something the Labour Party needs to consider.
Council tax is fundamentally flawed. For a start, taxing people based on the notional value of their property in 1991 is absurd. Indeed, even calling it ‘their’ property isn’t quite accurate, given the tax is paid by the occupier not the owner – so poor tenants living in expensive properties pay more than richer homeowners whose property is worth less.
Council tax bands have never been revalued, so billionaires living in multi-million pound houses pay the same amount as middle-income homeowners. The most expensive property sold in the UK in October last year went for just shy of £16m in Westminster. The cheapest was £18,500 in County Durham. The owner of the Westminster property would pay just £250 a year more in council tax than the owner of the County Durham property. Council tax bands can’t be varied individually either, so if a council wants to raise taxes on the most expensive properties it must raise taxes for the cheaper ones as well.
There is nothing progressive about council tax. It’s time we scrapped it, along with stamp duty and business rates, and replaced it with a fairer system.
In 2015 I led an investigation for the London Assembly into Land Value Tax (LVT). This led to the Tax Trial report which called for the mayor of London to be given the power to trial LVT in part of the capital. LVT is a tax on the annual rental value of land in its “optimum use” (as defined by a public authority).
Unlike council tax and business rates it is not a tax on the property that sits on the land. It is paid by the land owner, not the tenant, and applies regardless of whether the land is developed or not. It is not only a source of taxation but a disincentive for landowners to “land bank” sitting on undeveloped land and waiting for its value to rise.
Since 1995, the value of land in the UK has risen by 544 per cent whereas the value of the buildings sitting it has only risen by 219 per cent. And the value of land is largely determined by its location, not by any effort on the part of the landowner – a point made by Winston Churchill, a proponent of LVT, in 1909:
“Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived.”
When the state invests large sums of public money in a project like Crossrail, land values rise along the route. LVT would allow some of that rise in value to be recouped by the taxpayer.
Some of the same problems with council tax would apply to LVT: for example, what about homeowners who are asset rich but income poor? I’m convinced that a more progressive system could be constructed to allow people to choose whether to defer their payments until they sell their home, and most people wouldn’t be paying any more than they currently pay annually in council tax in any case.
What LVT would do is generate a lot more revenue from very wealthy landowners such as the Duke of Westminster who can afford to contribute more. Surely that’s a proposal that everyone in the Labour Party can get behind?
Tom Copley is a Labour member of the London Assembly.This article is from the CityMetric archive: some formatting and images may not be present.