Homes in council tax band D could see a £284 saving if Prime Minister Andy Burnham introduces a land value tax, according to analysis from Tax Policy Associates. The Labour leader is being urged to replace the current council tax system with a land value tax, a move that would shift the tax burden onto higher-value properties, particularly in London and the south-east.
How the land value tax would work
Under the proposed scheme, a land value tax of 1.28 per cent would see a band D home charged £2,551, compared with an average council tax bill of £2,267, resulting in a £284 saving. The analysis takes into account that top-end home values would fall, while the bottom end of the market would rise. Most of the extra charge would apply to London and the south-east, with the addition of Trafford in Greater Manchester, Bath, and other affluent areas.
Dan Neidle, from Tax Policy Associates, said: “Council tax is set and collected locally, and sits inside the spectacularly complicated system by which local government is financed. This operates by a formula. In simplified terms, central government estimates each council’s relative need for services, adjusts for differences in the cost of providing them, and then takes account of the resources the council could raise locally from council tax. Grants and retained business rates are adjusted so that councils with high needs and weak tax bases receive more support.”
Addressing concerns about local control
Neidle also addressed concerns that a land value tax would break the local nature of council tax. He said: “Some people wail and gnash their teeth at land value tax and say that it would be quite wrong to break the local nature of council tax (and its predecessors). But council tax is only as local as the formula permits it to be. Land value tax merely requires a new formula; if it was desired to leave local authorities in the same position as they are today, then the formula could achieve that. No doubt this would be very complicated, but it is not a point of principle.”
Timing and uncertainty
However, accountancy firm Bishop Fleming highlighted significant obstacles to implementation. “These are big problems to overcome. This parliament only has at most three years left and major tax changes in the build up to an election are generally avoided in order not to alienate those voters who lose out, so without a fully developed plan in place, is it likely that we will see a change before the next election?”
Bishop Fleming added: “If we need to wait for an election, likely to be in mid-2028, possibly early 2029, with an introductory period for any tax change, it seems unlikely that a new property tax will take effect this decade. There have been suggestions that this uncertainty is already delaying transactions as buyers do not want to risk incurring a large SDLT charge only for the tax to be abolished shortly afterwards. But we seem to be a long way from actual change, and it may be better to make decisions based on life needs rather than the hope or fear of a change that may never happen.”
