Andy Burnham spent his first week announcing things that were crowd-pleasing. The £2 cap on bus fares. Pausing the early release of prisoners. Reductions in business rates for pubs. A six-month VAT cut on household energy bills.
Critics who argue the cash benefit of these measures is limited, or that it’s unclear how they’ll be paid for, have missed the point. These early days are a window – probably the only window – in which Burnham has a chance to define himself in voters’ minds. It may or may not work.
Week two has only just begun, and he is already wading into much more difficult waters, including on the future of council tax and stamp duty.
The man himself was circumspect in his big BBC interview, arguing that the current system is unfair and that there are “big decisions” to be made. Over the weekend, The i Paper revealed that a proportional property tax is under consideration, taxing everyone 0.48 per cent of their home’s value annually.
This proposal to reform what we pay to live in our homes will open a can of worms which could easily come to overwhelm his premiership.
Council tax was born of a forced compromise after the failure of the poll tax. None have dared to touch it since 1993, for good reason. The original plan was to revalue tax bands intermittently, but this has never happened because of the certainty of a costly process followed by a sizeable popular backlash.
The weird outcome is that all homes are taxed based on their estimated value in April 1991 – even houses constructed today are allotted a price for what they would have been worth had they existed 35 years before they were built.
Of course such a farcical system is unsatisfactory. Stamp duty, too, is a notoriously bad tax, which indefensibly distorts the housing market. But this alternative idea doesn’t solve any of the problems, and creates various new ones.
Remember what this tax is meant to be for. Council tax funds local government and local services. Burnham himself is presenting himself as Mr Localism, advocating a “devolution revolution”. He’s right that too much power, particularly on tax and spending, is hoarded at the centre.
A blanket property tax, imposed from Westminster, would make this worse, not better.
Nor is the value of an area’s housing stock directly related to the cost of providing services. The most obvious factor in house prices is proximity to London, but this doesn’t mean that it should be much more expensive to collect the bins, light the streets or fill potholes there than anywhere else.
If a localist government centralising council tax isn’t jarring enough, we should also consider the prospect of a “fairness” reform imposing double-taxation on homeowners. If it goes ahead, this tax would replace the current stamp duty. It cannot be fair that someone who scrimped and saved to buy, and who paid thousands in stamp duty to do so, should now be hit with the same tax a second time in the format of an annual levy.
Then there are the practicalities of a proportional tax. “0.48 per cent of the value of a home” sounds simple, but what is the true and inherent value of a home?
The lengthy, costly and controversial national revaluation that so many governments have shied away from on council tax would have to be performed in full. That means compiling a modern-day Domesday Book valuing tens of millions of homes – a project so lengthy that by the time you’ve finished it, the values of the first homes assessed will be long out of date.
The very basis for ascertaining a home’s value is fraught with difficulty, and open to challenge, too. Do you use its most recent sale price, meaning that new buyers pay more than those who haven’t moved in 40 years? Or perhaps you take recent nearby sales as a guideline, turning one neighbour’s lucky sale into a tax hike for the whole street?
Currently, there is a government agency which handles 40,000 council banding appeals a year. I find it hard to imagine that it will be able to handle, say, a million. Every household slapped with a bill they disagree with will swiftly beat a path to the door of their local MP, too.
Prices take into account home improvements, like a new kitchen, solar panels or insulation – but factor these in and the Government will be creating a disincentive for people to renovate or to make their homes more energy efficient.
The complex and dynamic nature of house prices seems impossible to pin down in the way the policy’s advocates imagine. The very introduction of this tax would depress the value of some homes, making the tax itself immediately inaccurate. If or when a market crash hits, then either the whole council tax base – currently around £50bn – would have to shrink to reflect reduced values, or the whole idea of taxing inherent value would be exposed as a lie.
I understand why Burnham dislikes council tax and stamp duty. Nobody likes them. Any proposal to fix it must be clear, practical, localist and fair – this proposal is anything but.
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