Labour MPs have lined up calling for Rachel Reeves to overhaul council tax and scrap stamp duty as part of a major shake-up of property taxation ahead of the Budget.
The Chancellor is under pressure to raise taxes and cut spending ahead of her “make or break” Budget next month as she seeks to rebalance the country’s finances.
But MPs on her own back benches are demanding she introduce major reforms to both council tax and stamp duty and replace it with a single “proportional property tax” that would lead to significant falls in council tax bills in large parts of the country.
The Treasury is understood to be considering changes to how property is taxed in England and Wales, with a new levy on the sale of homes over £500,000 being looked at as well as removing the exemption from capital gains tax on homes sold for more than £1.5m.
Reeves is also believed to be looking at introducing a new band of council tax for higher value properties.
‘The most unfair tax in Britain’
However, Labour MPs want her to go further and to overhaul the council tax system, replacing it with a tax based on a percentage of the value of their homes. It comes after 13 MPs made similar demands in a letter to the Chancellor earlier this month.
MPs believe this will allow the Treasury to lower bills for around three quarters of households, while remaining cost neutral for the exchequer and will enable the Chancellor to scrap stamp duty.
Jonathan Hinder, Labour MP for Pendle and Clitheroe, said: “Council tax is the most unfair, regressive tax in Britain. My constituents in Pendle and Clitheroe are paying double the amount those living in £1m-plus houses in west London are paying.
“A proportional property tax would cut bills for most ordinary people, while taxing property wealth progressively, and allow us to scrap stamp duty in the process.”
His comments were echoed by Jonathan Brash, Labour MP for Hartlepool, who described council tax as a “tax on deprivation”.
“Families in towns like Hartlepool pay far more than those in wealthier parts of the country for homes worth a fraction of the value.
“That cannot be right,” he said, adding: “Replacing council tax with a fair, proportional property tax would lift the burden on ordinary households, boost living standards, and deliver the kind of levelling up our country really needs.”
The proposals for a proportional property tax have been championed by campaign group the Fairer Share, claiming that 77 per cent of households could save around £556 a year under the changes.
Scrapping stamp duty not ruled out
Liverpool MPs Kim Johnson and Ian Byrne as well as MP for Southport Patrick Hurley have also now backed the changes, with Johnson insisting: “It is indefensible that families in areas with some of the highest levels of deprivation are shouldering a greater burden than those with the greatest wealth.”
Chief Secretary to the Treasury James Murray refused to rule scrapping stamp duty in or out on Tuesday, telling MPs that any such move would come at a cost.
Responding to Tory calls to scrap the tax, Murray said in the Commons: “Stamp duty is hardly a popular tax.“Stamp duty has to be paid at a point when most people feel they probably have enough to worry about already. If there was a cost-free way to get rid of stamp duty, I would not expect long queues of people lining up to keep it.
“But there is, of course, no cost-free way of doing this,” he added.
Conservative leader Kemi Badenoch galvanised her party – and her own flagging leadership – when she pledged to scrap stamp duty during her speech to the Tory party conference earlier this month.
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Chris Curtis, co-chair of the Labour Growth Group, branded stamp duty a “dreadful tax” but said scrapping it would need to come as part of wider changes.
The MP for Milton Keynes North said: “[Stamp duty] discourages the very behaviour we should want to encourage, people moving homes that no longer suit them and into properties that do.”
He added: “If we ignore [council tax] and just focus on stamp duty, then we’re only going to make that broken system worse.
“We should set a path to reduce and ultimately reform the way we do stamp duty, but we should do it as part of a broader package that shifts tax away from transactions and towards ongoing occupation of higher value properties.”
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