Land value tax would lead to a redistribution of the local tax burden. This would produce winners and losers
Housing is becoming an ever-more important policy focus in Britain. The lack of access to capital for first-time buyers, caps on benefits and the possibility that mass house building could be a key element in boosting growth are among the reasons why there is an increased urgency to the study of housing reforms.
In a new report, the Joseph Rowntree Foundation has argued, among other things, for a revaluation of property for council tax purposes “with a view to gradually transforming it into a national land and property tax”. The Institute for Fiscal Studies, in a wider report on taxation, concluded council tax should relate more closely to actual property values. Do these reports pave the way for a radical change to local taxation?
The answer is almost certainly not. Council tax is the most toxic of all government revenues. Because it is perceptible (bills arrive every spring in brown envelopes) and virtually impossible to avoid, people feel its impact. The last Labour government abandoned a revaluation, while communities secretary Eric Pickles has sustained a freeze in virtually all authorities. In Scotland, council tax has been frozen since 2007. Only Wales has bravely undertaken a revaluation.
But by far the most important element in considering any reform to local taxation is the fate of Margaret Thatcher following the introduction of the community charge in 1990. National politicians fear that if they reform a revenue source as visible and unpopular as council tax they will be driven from office following riots in Trafalgar Square.
Land value tax may or may not be a good idea. But it would lead to a radical redistribution of the local tax burden without any likely increase in income to local government. This redistribution would produce winners and losers. Winners would keep quiet while losers (many of whom would be older voters in the south) would respond at the ballot box.
The politicisation of council tax has been a tragedy for local government. Councils’ sole locally raised tax source has become the least popular of all public revenues. Those seeking to improve the rationality of housing finance would do well to look elsewhere for a solution.
Tony Travers, director, Greater London Group, London School of Economics