Stamp out regressive property taxes

Normally the Taxpayers’ Alliance website is only worth a visit to raise a smile and to see what people pretending to be on the taxpayers’ side are up to. I say pretend because of course everyone is a taxpayer: those who do not pay income tax pay more regressive taxes like VAT, but the TPA prefer a more clearcut world where ‘we’ the taxpayers pay for ‘them’ the non-taxpayers through profligate public spending.

What caught my eye was a new TPA campaign called ‘Stamp Out Stamp Duty’ backed up by a research note that contained some interesting data. In 2012-13 over £4 billion stamp duty was collected, of which £3.6 billion came from transactions on properties with values over £250,000 - only a  quarter of sales by number. What is intriguing is the district-level figures they provide, showing just how enormously the tax take varies from area to area. In Westminster, 3,630 transactions in 2012-13 produced total stamp duty revenue of £295,706,632. 97% of transactions were at the rate of 3% or higher (ie property value £250,000 or above).

Towards the other end of the scale, the 2,955 transactions in Stoke-on-Trent produced a total tax take of only £892,259. Only 29 transactions – 1% – attracted tax at 3% or more and these still produced 30% of the total tax take.

Obviously everywhere else was in between these two extremes, but the figures confirmed my suspicions about why the Mayor of London wants to get his hands on the London share of stamp duty income and why Westminster City Council has also recently called for a slice of the tax to remain locally. It is clearly the case that the people Stoke, and other places with lower property values, would lose out on such a deal, but since when did the Mayor bother about that? It also worth noting that Taxpayers’ Alliance policies always seem to benefit the most well-off, in this case those that can afford the most expensive houses. Equally, by removing a significant source of public income, the most likely losers would be those on low incomes who need public services.

Writing in the Guardian, economist Jonathan Portes made the point that it is fair enough to call for an end to stamp duty – a terrible tax, he calls it – but only if it is replaced by a fairer form of property tax. He argues that simple abolition, apart from leaving a hole in the public finances, would also be a hugely regressive move. Because stamp duty is only levied when a property is sold, removal would tend to push up prices (people would pay less tax and could afford more house). The UK would be a fairer and more productive country with a higher tax burden on land and property, not a lower one. As council tax also charges more to poorer people in relation to their property values, it should also be considered for replacement.

Portes calls for a revamped council tax levied on current property values with no cap. This would, he says, achieve the same aims as the ‘Mansion Tax’ and in a simpler way. Identified problems – like the impact on asset-rich but income-poor pensioners – could be dealt with, for example by deferring payments until the property is sold. And he observes that the people who would lose from such a new council tax would be the vested interests that the Taxpayers’ Alliance actually represents.

There are a lot of proposals around at the moment that look to make property and land taxation fairer. I doubt if he TPA will support any of the progressive ones, but this is a big debate that must be had.

Courtesy of Steve Hilditch at Red Brick and on Twitter @stevehilditch and @labourhousing