Londoners get a property tax discount equivalent to more than £3bn a year because council tax was structured in a way that ensures people living outside the capital have to pay disproportionately more, a thinktank has said.
The Resolution Foundation has come up with the figure in a report that says, outside London, many households are paying hundreds of pounds a year more in council tax than they would be under a fair system.
The report calls for council tax to be replaced with “a proportional tax charged at 0.7% of property value”. It also says stamp duty should be abolished, but with both changes brought in gradually to make the transition manageable for those losing out.
Andy Burnham has in the past expressed interest in a reform along these lines, althought this is not an idea he has publicly advocated since becoming PM.
Explaning the problem with council tax, the Resolution Foundation report says:
double quotation mark When council tax was established, a deliberate decision was taken to adopt a compressed rate schedule. The value of the property in 1991 determines the council tax band a property sits in and every bill, for every local authority, is a fixed fraction (or multiple) of the band D bill in that area. These so-called ‘multipliers’ set the ratio of bills across the different bands and meant that, when council tax was established, a property in the top band was worth at least eight times as much as one in the bottom band, while their bill was at most only three times larger.
This original design flaw has since been compounded by the failure to update the value of properties from their 1991 levels. In the 35 years since, there have been large increases in house prices and – importantly – significant regional divergence …
Now, a property at the bottom of the top band in Richmond-upon-Thames has a price 15 times larger than one at the top of the bottom band in Hull, while their council tax bill is only just over double. Alternatively: the resident of Hull is paying over £1,800 more each year than if they faced the same effective tax rate as the resident of Richmond-upon-Thames.
The report says this has resulted in the equivalent of a £3bn giveaway for Londoners.
double quotation mark Compared to a system where the relationship between tax revenues and the value of housing was the same across the country, London paid £3.1bn too little in residential property tax in 2024-25, with every other region besides the south-east and east of England overpaying. If the rest of England had paid taxes as a proportion of the value of their homes at a rate as low as that in London, regions outside of London would have paid £12.3bn less in tax.
As a result, most households in England are paying hundreds of pounds a year more than they would be under the proportional property tax system proposed by the thinktank, it says.
double quotation mark By 2030-31, and compared to an alternative of property being taxed at a uniform rate everywhere, 61% of households would be overpaying tax by an average of £430 a year, and 36% of households would be underpaying by an average of £680 a year.
Hannah Aldridge , a senior research and policy analyst at thinktank, said:
double quotation mark The UK raises more tax revenue from the homes we live in than most other advanced economies. Unfortunately, our two main housing taxes – council tax and stamp duty – are terribly designed, grossly unfair and economically harmful.
The economic and fairness cas…