is therefore largely levied on activities that we ought instead to be encouraging – work, creativity and enterprise. We are taxing what is easy to tax rather than what it is right to tax. A meagre 5 per cent of revenue is raised on land and buildings which are static creators of unearned income. The case for taxing land and property, though hardly popular, is clear. Property, unlike income, is hard to hide and taxes on it hard to evade. When domestic residences attract no capital gains tax, property becomes an investment as much as a home. This is a public incentive for the creation of an asset bubble. I am lucky enough to have bought a house yet I cannot meaningfully be credited with earning its rise in value. Supply in London, where I live, is constrained and, in an open economy, money floods into property in the capital. The lucky ones, like me, enjoy the bonanza while the unlucky, born too late, cannot afford to buy. This makes no sense.
The place to start is the council tax which in England, incredibly, is still based on 1991 house prices. Every house valued at more than £320,000 pays the same amount. Since 1991 the average price of a London house has risen by 399 per cent. In the east Midlands, the region with the lowest house-price inflation in the country, prices have still risen by 219 per cent. At the moment, the owners of a home in the highest band pay three times as much in council tax as the owners of a home in the lowest band even though their home is twenty times the value. Inflate that 1991 figure by the average rise in house prices over the past twenty years, and you get to almost £1 million. The obvious reform is to revalue properties now, and to do so regularly, and to introduce a graded property tax, proportionate to the value of the house. The addition of three new council tax bands could raise £4.7 billion a year. Somebody will always object that they know a little old lady who cannot find a single penny in any one of her twenty-seven rooms, but that’s easily dealt with. The debt can be deferred and paid out of the estate.
Higher property taxes would generate revenue from foreign owners who otherwise swerve with ease past the UK tax authorities. If property prices rise the tax take will rise with it. Thus a tax could help to flatten the volatile housing cycle. It would certainly help to redress the gap between the north and the south because 60 per cent of the total revenue on houses worth more than £1 million would be paid by four London boroughs. The whole of England north of, and including, Birmingham would pay only 2 per cent of the total.
If we do not confront the need to tax fairly then there is no hope of solving Britain’s housing crisis, which is where the breach of the political covenant is most flagrant. Home ownership, the promise of which has been central to the bargain of British politics, has now fallen to its lowest level since 1987. As land values rise, house building is at its lowest level since 1923. Money is flowing into the existing stock of property from overseas and the planning regime makes new building harder than it should be. A higher divorce rate, later marriage and greater longevity means there are more single-person households than there have ever been. In 1911 only 5 per cent of households contained one person. Now, one in every four houses is occupied by a single person. Since 2008 access to easy mortgage finance has been curtailed. Housing costs for the average family have tripled since 1961, from 6 per cent of income to 18 per cent.
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