The favourite to be Britain’s next prime minister backs a tax revolution that has painful repercussions
Daily Telegraph 06/06/26
The man who is increasingly likely to be Britain’s next prime minister wants to introduce a property tax.
“I think land is under-taxed,” Andy Burnham said last month as he launched his campaign to return to Westminster and challenge Sir Keir Starmer for the Labour leadership. “I have long been persuaded of the argument for a land value tax,” he added.
The Mayor of Greater Manchester, who is the favourite to win a potential leadership battle, seems to be eyeing revolution in British property taxation.
It is a system that is in desperate need of radical reform. Economists and politicians across the political spectrum have long been calling for an overhaul of the system to drive growth, boost productivity and address deep-seated unfairness.
Some argue that, done right, a land tax could be a silver bullet for the economy. But a botched version could bring financial meltdown.
Charles Goodhart, a former Bank of England economist, said: “I think the arguments in favour of a land tax are really overwhelming, irrespective of where you stand politically. The advantages are unquestionable.
“But the problem is getting from A to B. The transitional problems are really quite serious and severe.”
A land tax would mean an annual charge based on the value of the land a property sits on, and potentially also the buildings on top of it.
Many of the proposals put forward by various think tanks advocate using a proportional property tax (a tax charged as a percentage of a property’s total value) as a way to replace both stamp duty and council tax.
Burnham has supported a campaign from the group Fairer Share, which calls for stamp duty and council tax to be replaced by a 0.48pc proportional property tax. An average UK house, valued at £270,000, would pay £1,296 a year.
If such a tax were introduced suddenly, house prices would fall substantially, Goodhart warned.
“If you do that too much, you would bring about a financial crisis, because a lot of financial relationships are collateralised on property. You can’t do this quickly, and you can’t do it in a way that would make house prices collapse.”
But there are many reasons why any politician would want to try.
Sixteen years ago, during Burnham’s 2010 candidacy for the Labour leadership, he outlined how a land tax could allow for the abolition of stamp duty.
This time around, he is not campaigning on plans to overhaul property taxation and has committed himself to supporting Labour’s 2024 manifesto. But things could change quickly if he were to win the leadership contest and call a general election. Burnham has also been outspoken about wanting to reform council tax, which he says is “highly regressive”.
An ageing and unequal system
Everyone agrees that Britain’s property taxation system is a mess. Council tax rates are based on property values determined in 1991. Now these values are wildly out of date and driving inequalities across the country.
In proportion to local property values, council tax bills in Hartlepool, one of the most impoverished parts of the country, are 13.5 times higher than those in Westminster, one of the richest.
While council tax is disproportionately punitive in the parts of the country where house prices are lower, stamp duty disproportionately hits buyers in the places where homes are more unaffordable.
A buyer purchasing a typical home in Westminster will pay £32,200 in tax on the purchase, or 3.8pc of the property’s value. In Hartlepool, the tax bill to buy an average home is £240 – just 0.18pc of its value.
Britain’s property tax system makes it harder for people to buy the homes they need to start families or move for work and it has made our housing market incredibly inefficient. Older homeowners, for example, have every incentive not to downsize.
A land tax could remedy this. Tim Leunig, former adviser to Rishi Sunak and the author of a paper for think tank Onward, which outlined plans for proportional property tax, says: “Although it could go wrong and harm house prices, it is much more likely to help the housing market. That is the number one thing to say. Because stamp duty is an absolute killer.”
And it would be efficient because the supply of land is fixed, said James Browne, senior policy adviser at the Tony Blair Institute (TBI). Unlike higher taxes on work, investment or building, higher taxes on land cannot reduce the supply of land. “For economists, it is a very attractive tax base for that reason.”
The case is becoming greater as housebuilding slumps. The number of planning consents has plunged to levels last seen in the 2010s, despite Labour’s central manifesto promise to build an unprecedented 1.5 million homes over this parliament. In London, where stamp duty is a significant drag on buyer demand, the drop-off has been particularly extreme.
“I think the collapse in housebuilding in London means that whoever is the next prime minister will have to sit down and think about it very seriously,” says Leunig.
“Because there is no good having a tax if it is a tax on virtually nothing.”
A land tax or proportional property tax has widespread support that is likely to gain momentum as a Labour leadership contest approaches.
“There is a bit of a groundswell, certainly,” says Daniel Reast, co-author of a May report for the Centre for London that called for a proportional property tax.
Shifting towards land taxation has also been touted by the Labour Growth Group, a group of 100 MPs chaired by Chris Curtis, a key ally of Wes Streeting, another leadership hopeful.
When the group published a 113-page economic manifesto in May, it argued that “over time, the tax base should move away from taxing buildings, improvements and active business use toward taxing land value.”
But the idea traverses much larger ideological divides. As well as Burnham, signatories backing Fairer Share’s campaign include John McDonnell, the former shadow chancellor, but also Kevin Hollinrake, the Tory party chair, Sir Vince Cable, the former Liberal Democrats leader and Lee Anderson, chairman of Reform.
The support is similarly widespread across think tanks, from the Institute for Economic Affairs (IEA) on the right to the Institute for Public Policy Research (IPPR) on the left.
The proposals are primarily for reform that would be revenue-neutral. The UK has the highest rate of property taxation in the Organisation for Economic Cooperation and Development (OECD). The UK’s combined property taxes – which include stamp duty, business rates and council tax – amount to 3.74pc of GDP, almost exactly quadruple the 0.93pc rate in Ireland.
“Our campaign isn’t about raising taxes. There’s no room to increase our property taxes. It is a case of rebalancing, making them fairer,” says Andrew Dixon of Fairer Share.
But rebalancing means that while some households would see their annual bills fall, others – namely in London – would see their bills rise.
London takes the brunt
Fairer Share has estimated that while most households would see annual taxes rise or fall by less than £1,000, residents of Westminster and Kensington & Chelsea would see bills rise by £2,600 and £4,200 respectively.
House prices, meanwhile, would fall most in the London borough of Brent, dropping by an average of £13,224, and would rise by £16,387 in Hartlepool.
“I think everyone would agree that that is the ideal system that we want to get to. The big problem with that, and the reasons why it hasn’t yet been introduced, is that people who are in higher-value properties would lose out,” says Browne.
“Anywhere that any property has an increase in its council tax liability would see its value reduced.”
The flip side is that homeowners in these areas would also be the biggest beneficiaries of stamp duty getting scrapped, but they would not get to enjoy this until they moved.
Goodhart adds: “Let’s say you’ve just bought a house. You have paid a massive amount of stamp duty and then someone suddenly turns around and says, ‘We’re going to abolish stamp duty and introduce a land tax instead’. You’ve been hit both ways.”
There are various ways to mitigate these effects. The TBI recommends implementing the reform incrementally. The Centre for London calls for a proportional property tax that is charged at a lower rate in the capital than outside it. Fairer Share has suggested options for deferred payments and caps on the initial tax rises until a home is sold.
These measures would lessen the house price impact, but there would still be shifts.
Calculations by Landman Economics in 2022 estimated that, under Fairer Share’s plans, values in the capital would fall by a little more than 2pc. House prices in the North East, by contrast, would surge by nearly 6pc.
But Burnham is a leader who might have more stomach for this kind of impact than other politicians. After all, his support base is certainly not in London.
“Someone might well want to say, ‘I haven’t become prime minister just to sit around,’” says Leunig. “If you are happy to be known as the King of the North.”
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