Plans for a new Land Value Tax (LVT), championed by incoming Prime Minister Andy Burnham, could significantly impact house prices, potentially causing a slump of up to 20% in parts of the South of England, a new analysis from the Tax Policy Associates think tank suggests. The proposed tax would replace both council tax and stamp duty, levies long criticized by economists.
The analysis models the effect of a 1.28% annual land tax, the rate estimated to be necessary to replace the £56.7 billion currently raised by council tax and stamp duty. Overall, the Tax Policy Associates found that 69% of households would see a reduction in their tax bills, while 31% would face an increase. However, the regional disparities are stark.
In areas with lower property values, such as Blackpool, the average Band D council tax bill of £2,392 per year could be replaced by an LVT of £662, potentially leading to a 28% increase in house prices. Similarly, in Wigan, Mr. Burnham's family home, a Band D council tax of £2,031 could fall to £1,355, with potential for a 9% rise in property values.
Conversely, areas with higher land values could face substantial tax hikes. In Bristol, the Band D council tax of £2,584 could be replaced by an £4,808 LVT, nearly doubling the amount and potentially causing a 12% drop in house prices. Brighton could see its £2,457 Band D bill rise to £4,284, with house prices falling by 10%.
The most significant impacts are projected for London and its commuter belt. In Kensington and Chelsea, a Band D council tax bill of £1,592 could more than triple to £5,455, with house prices potentially falling by 21%. In St Albans, a Band H property could see its annual council tax bill jump from £4,612 to £24,854, triggering an estimated 23% fall in house prices.
Shadow chancellor Sir Mel Stride criticized the proposal as an 'unfair tax on aspiration,' urging Mr. Burnham to focus on reducing the benefits bill instead. Mr. Burnham has previously described council tax as 'very regressive' and based on outdated valuations, advocating for an LVT as a form of 'aspirational socialism.' He has also indicated plans to tax the wealthier population to fund initiatives like energy bill support.
Dan Neidle, founder of Tax Policy Associates, cautioned that the analysis of house price impacts is 'crude' but acknowledged that a broad LVT could create a 'sudden shock' reducing property values in some areas. He suggested that regional application of the tax or other design considerations could mitigate these effects. He also noted that replacing stamp duty and council tax could potentially boost economic growth, though the implementation of a new property tax could take years.