Council tax should be scrapped and replaced with 0.5% tax for all, says report

A left-wing think tank is calling for outdated council tax to be scrapped and a new yearly levy brought in, which it says would mean more households would be better off

Council tax should be replaced by a new levy of 0.5% of the value of a property, according to a left-wing think tank.

This ‘mansion tax’ would be fairer than the current system, the Institute for Public Policy Research (IPPR) says.

In a nutshell, the IPPR says council tax is unfair because people with the most expensive homes aren’t paying enough tax.

Council tax is based on property values in 1991, but many house prices have soared since then.

The think tank says the speed of house price rises over the decades means many homeowners are sitting on assets worth much more than they paid for them – but are still paying the same rate of council tax.

An IPPR statement said: “Council tax is based on 30-year-old property valuations, varies widely around the country, and is capped at relatively low property values, meaning that a multi-million-pound property in the South East of England can attract the same tax bill as a normal family home elsewhere.”

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Government figures say the average UK house is worth £256,000 – and would pay a tax of £1,280 a year under the new levy.

A house valued at £500,000 would pay £2,000 and one worth £1million would fork out £5,000.

The proposed new tax would also replace stamp duty that is currently paid by housebuyers, making life easier for first-time buyers.

The IPPR said the new tax would mean house prices fall 3% in London and the South East, but rise by up to 15% in regions like the North East and North West.

Do you qualify for a council tax discount? Find out in our step-by-step guide here

IPPR economist Shreya Nanda said: “The housing market has been almost entirely responsible for growing wealth inequality since the 1970s.

“Over this period, while consumer prices have increased by a factor of 11, house prices have increased a staggering 60 times.

“Those who did not own property during the long house price boom have been locked out, and too many face steep rents, cramped flats, and eye-watering mortgages.”

The change means three-quarters of houses would pay less tax than they do under the council tax system.

The least well-off would pay less, but those with higher house prices would pay more.

The IPPR said the lowest-earning homes pay double the council tax of the highest-earning ones – as a proportion of overall income.

Earlier this week The Mirror reported the typical under-30 has saved nearly £10,000 for a deposit on their first home, according to new research.

But three quarters worry that house prices are rising so fast that their salary increases cannot keep pace.

More than half (55%) of the 2,000 18-29 year-olds polled would be happy to move to a less desirable location if it meant they could own their own property.

And 76% feel the government should be creating more incentives to help young adults get on the property ladder.

Overall, after paying bills, rent and other living expenses, the average under-30 has squirreled away £9,300 towards their first property.