Radical Proposal for Overhauling Housing Taxes Sparks Debate
In a bold move that could reshape the landscape of property taxation in England, Tim Leunig, a former adviser to ex-Prime Minister Rishi Sunak and the architect of the Covid furlough scheme, is calling for the abolition of both council tax and stamp duty. This proposed overhaul comes as a response to widespread criticisms of these taxes, which Leunig deems "unfair and outdated."
Leunig's proposal aims to address what he and many others view as fundamental flaws in the current tax system. Under the existing council tax regime, the amount paid by homeowners is based on property values from over three decades ago. As a result, a modest terraced house in Burnley could end up paying more in council tax than a grand mansion in Kensington. This outdated valuation system has led to significant disparities, as highlighted by recent critiques from the Institute for Fiscal Studies (IFS). They mockingly point out that council tax assessments were made when Mikhail Gorbachev was still President of the Soviet Union and Chesney Hawkes was topping the charts with “The One and Only.”
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In addition to council tax, Leunig criticizes stamp duty, a tax imposed on property purchases over £250,000. According to him, this tax is not only economically damaging but also hinders housing mobility. The current system discourages homeowners from moving, particularly in regions where property values are high, effectively stalling potential growth and relocation for better job opportunities or family needs.
Leunig's plan proposes a new taxation framework that would replace council tax with a levy based on home values up to £500,000. This levy would fund local councils, ensuring that those in less affluent areas pay for their local services. For properties valued over £500,000, a national annual levy would be introduced to replace the revenue from stamp duty. This national tax would be tiered: a rate of 0.54% for homes valued between £500,000 and £1 million, and 0.81% for properties exceeding £1 million.
By shifting the tax burden in this manner, Leunig argues that the new system would be more equitable. It would ensure that property owners in affluent areas contribute more to the national coffers, while also making it easier and cheaper for people to move homes. This change is expected to promote economic mobility and better align tax payments with current property values.
Leunig's proposal has sparked significant discussion among policymakers, including calls for Labour leader Keir Starmer to consider such reforms in his autumn budget. As Starmer focuses on reviving public services and economic growth, the overhaul of council tax and stamp duty could become a central issue in the ongoing debate about fair taxation and wealth distribution.
In summary, Leunig's radical overhaul seeks to modernize and rectify perceived injustices in the current property tax system, aiming to create a fairer, more efficient approach to taxation. Whether this proposal will gain traction remains to be seen, but it undoubtedly sets the stage for a significant policy discussion in the near future.
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