Rest of England paying £3.1 billion to subsidise London homes
Key Points
- Londoners underpay £3.1 billion in property tax relative to their home values
- 85% of North East households overpay by an average of £710 a year
- Stamp Duty blocks around 100,000 house purchases every year
- Resolution Foundation proposes a 0.7% levy and scrapping Stamp Duty on main homes
- The think tank wants a reform roadmap in next month's Budget
Londoners underpay £3.1 billion in property tax relative to their home values, the Resolution Foundation has found.
The think tank published the findings on Thursday (24 September) in a report called Home Economics, which examines Council Tax and the main rate of residential Stamp Duty in England.
The two taxes are on track to raise £74 billion by 2030-31, and the report found their design increases regional inequality and holds back economic growth.
The UK raises 3.7% of GDP from property taxes, almost twice the OECD average of 2%.
Council Tax has not accounted for almost four decades of house price growth, which has made the system highly regressive.
By the end of the decade, someone in a £100,000 home will typically pay almost three times as much tax relative to its value as someone in a £1 million home.
Around 80% of London households benefit from the current system.
In the North East, 85% of households are on track to overpay, by an average of £710 a year by 2030-31.
Just over two thirds of households in England outside the capital overpay compared with a proportional property tax.
The report also found that Stamp Duty prevents around 100,000 house purchases every year, blocking moves such as downsizing or relocating for work.
“Our housing taxes fall heaviest on those least able to afford them and have turned into a huge £3.1 billion subsidy for those living in London – paid for by households across the rest of England,” said Hannah Aldridge, senior research and policy analyst at the Resolution Foundation.
Plans for a new property tax
The Resolution Foundation wants England to move to a proportional property tax and scrap Stamp Duty on primary residences.
It said a revenue-neutral version could work as a levy equal to 0.7% of a property’s value.
The levy would include a rebate scheme for low-income households and a deferral scheme for people with high housing wealth but low incomes.
The think tank warned that abolishing Stamp Duty outright would disrupt the housing market and blow a £15 billion hole in the public finances.
It added that a sudden change would also hand existing homeowners a large, undeserved windfall.
The Resolution Foundation called on the Chancellor to set out a reform roadmap in the Budget, starting with an up-to-date database of property valuations.
An independent commission would then use that data to examine possible changes to housing tax rates.
To limit housing market instability, it suggested the Chancellor commit to freezing all Stamp Duty rates and thresholds for the rest of the parliament.
Buyers could also offset any Stamp Duty paid before a policy change against future property tax bills.
“Housing taxes cannot be fixed overnight, but the Chancellor should set out a sensible roadmap to reform in the Budget next month,” said Aldridge.
