Scrap Council Tax, Business Rates and Stamp Duty for Land Value Tax says think tank

Tax Policy Associates says cutting Stamp Duty increases house prices and previous attempts to provide relief for first-time buyers have all proved to be ineffective.

 

Stamp Duty Stamp Duty, Council Tax and Business Rates should all be scrapped and replaced with Land Value Tax (LVT) to make the system fairer for all, latest analysis from Tax Policy Associates suggests.

The hated Stamp Duty tax made headlines again over the weekend with the Conservatives wanting to abolish it for most first-time buyers and Nigel Farage’s Reform UK pledging to scrap the tax for properties worth less than £750,000.

INEFFECTIVE
Dan Needle, Founder, Tax Policy Associates
Dan Neidle, Founder, Tax Policy Associates

But the think tank says cutting stamp duty increases house prices and previous attempts to provide relief for first-time buyers have all proved to be ineffective.

Writing in a blog on the Tax Policy Associates website Founder Dan Neidle adds: “Council Tax is also terrible tax – with Buckingham Palace paying less Council Tax than a semi in Blackpool.

“We can solve both problems together, and tax land in a way that encourages housebuilding and economic growth. But that requires smart thinking and brave politics.”

Neidle says of Stamp Duty: “It reduces transactions, distorts the housing market, and often stops people moving when they want to.

HARDER TO BORROW

“Stamp Duty makes it harder to borrow from a bank (because the Stamp Duty is ‘lost value’). All of this means it reduces labour mobility, results in inefficient use of land, and plausibly holds back economic growth. It also makes people miserable.”

The problem, Neidle says, is that like many bad taxes, politicians have become addicted to it.

“SDLT now raises £12 billion each year – an amount that’s hard to ignore. And there’s an even worse problem: abolition would inflate property prices.”

Neidle says the link between Stamp Duty and prices is clear when you look at the impact on house prices of the ‘Stamp Duty holidays’ in 2021.

Graph from Tax Policy Associates showing impact of stamp duty holidays on house prices.

He explains: “The spikes in June and September coincide with the ends of the ‘holidays’. A rush of people to take advantage of the discounted Stamp Duty.

“Of course the ‘holidays’ were temporary – but the chart suggests that there was a permanent upwards adjustment in house prices.”

Council Tax is another gripe.

“Council Tax is hopeless – working off 1991 valuations, and with a distributional curve that looks upside down,” he says. “We can see the problem immediately from the Westminster Council Tax bands.

“The bands cap out at £320k – equivalent to about a £2 million property today. So there are two bedroom apartments paying the same Council Tax as Buckingham Palace.”

The solution is to fix council tax and stamp duty at the same time.”

The solution, Neidle argues, is to fix Council Tax and Stamp Duty at the same time.

He says: “Abolish Stamp Duty altogether, and change Council Tax to make it fairer… calibrating that change so that end of Stamp Duty doesn’t just send house prices soaring.”

“The really courageous answer is to scrap Council Tax, Business Rates and Stamp Duty – that’s about £80bn altogether – and replace them all with ‘Land Value Tax’ (LVT).

“If all we do is abolish Stamp Duty, most or all of the tax saved by buyers will be eaten up in higher property values. It becomes a £12 billion government handout to sellers.

“There’s no free lunch. But there is an opportunity for a big pro-growth tax reform. It might even be popular.”

Read the full blog HERE.


3 Comments

  1. The reason the SDLT holidays resulted in a permanent increase was that there was a time limit to it. Many who had plans to move maybe 6 months down the line bought those plans forward in order to benefit from the saving. There was a feeding frenzy. When the holiday ended, there was a vacuum. Suddenly there were no houses to buy. They’d already been sold. Anyone wanting to move in later months, found there was nothing they themselves could buy. That situation persisted, became self-perpetuating. There became an illusory shortage of property. Illusory, because the homes existed. They just weren’t being offered for sale. Supply was rendered ineffective by the fear of being unable to find the next home to move to. Had there not been an end date, the natural rhythm of the market would not have been disrupted.

What's your opinion?

Back to top button