Thank you for contacting me about council tax reform and the proposal for a proportional property tax.
I read the proposal with interest and it raises important points about fairness in our tax system. However, as I understand it, a lot of places that are low income areas but are also experiencing rising house prices would be hit very hard by the proportional property tax proposal.
A good example to use would be Tower Hamlets, which has one of the worst levels of deprivation in England and has the highest percentage of those over 60 years of age experiencing income deprivation. Average house prices in Tower Hamlets – using the three-year average method proposed – have increased from £276,000 to £449,000 between January 2012 and March 2020. Using the proportional property tax multiplier of 0.48 per cent, this would have put the average proportional property tax at £1,327 in 2012 and at £2,155 in 2020, an increase of 62 per cent in just eight years. Tower Hamlets residents – including those renting – in the lowest 30 per cent income bracket could be paying up to and over 10 per cent of their annual income on this property tax alone, even before paying national insurance contributions and income tax. Although we have no such data for Hastings and Rye, I am concerned that we would see a similar pattern here.
In comparison, these are much higher than the actual council tax rates in Tower Hamlets, which stood at £1,034 in 2012-13 and £1,113 in 2020-21 – a nominal increase of just 7.6 per cent over eight years, which is below the rate of inflation. Another issue to consider is that excessive council tax increases are kept in check by referendum principles, which could not be done under the proposed property tax system. If house prices begin to rise in an area, low income households would quickly see their bills rise at staggering rates well above increases to their income.
It is also important to keep in mind that people in London are much more likely to rent than own their home outright compared to elsewhere in England. Average weekly rents are almost double in London compared to the rest of the country, and average rents have increased at a much faster rate there than in any other region over the last decade. Even if the new proportional tax was to be paid by property owners rather than tenants, it is highly likely that this would simply be passed onto tenants in rent increases, as property owners still need to make mortgage payments.
On second homes and vacant homes, 95 per cent of second homes are already charged full council tax and vacant homes can be charged double the council tax rate if these are empty for two or more years. Council tax is a valuable source of revenue for local councils and it is important that they have the discretion to raise or lower council tax rates based on the needs in their local area.
Thank you for taking the time to contact me.
Sally-Ann Hart MP