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Radical land tax proposal gains traction with support from across the political spectrum

August 27, 2024

A radical proposal to replace Britain’s complex system of property taxes with a single land tax is gaining unprecedented support from both sides of the political divide.

The idea, which echoes an early 20th-century proposal by Winston Churchill and David Lloyd George, would see council tax, stamp duty, and business rates abolished in favour of a flat annual tax on land value.

The concept has garnered support from unlikely allies, ranging from John McDonnell, the former Labour shadow chancellor, to Tim Leunig, a former adviser to Rishi Sunak. Campaign group Fairer Share is rallying cross-party MPs and peers to push Chancellor Rachel Reeves to consider the reform, which advocates believe could stimulate economic growth and provide much-needed revenue for the Treasury.

The proposal suggests that taxing land rather than property could help address the inefficiencies and inequalities in the current system. For instance, council tax rates are still based on 1991 property valuations, leading to significant regional disparities. In wealthier areas like Westminster, residents pay far less in council tax compared to those in more deprived regions like Hartlepool.

The proposed land tax would be a flat rate, potentially 0.48% of the value of a home, applied across the country. Analysis by Fairer Share indicates that while 77% of homeowners would benefit from lower taxes, wealthier areas such as Kensington and Wimbledon would see higher bills. To ease the transition, the group has suggested capping the additional cost for wealthier households until they move, at which point they would benefit from paying no stamp duty.

Despite its appeal, the proposal is not without risks. Critics warn that if implemented too quickly, a land tax could lead to a significant drop in property prices, particularly in affluent areas, and potentially destabilise the housing market. Even so, the idea has continued to gain traction as both Left and Right recognise the inefficiencies of the current system.

Supporters argue that now is the time for bold reform. With Labour’s massive majority and the growing support across the political spectrum, advocates like Charles Goodhart, a former Bank of England economist, believe Rachel Reeves has “the best chance since Lloyd George” to make it happen.

Yet, there are doubts about whether the Chancellor will seize the moment. While Labour’s manifesto did not mention a land tax, the growing pressure and the need for economic growth might make this radical idea more appealing as Reeves navigates the challenges of filling a £22 billion gap in public finances.

Whether or not this proposal becomes reality, the debate signals a significant shift in how the UK might approach property taxation in the future, with potential long-term impacts on the economy and housing market.