Rishi Sunak, the Chancellor, is under pressure to slash taxes to promote the Government’s “levelling up” agenda and prolong the stamp duty holiday to help homebuyers who risk an extra tax bill in April.
Council tax should be a key target for reform, according to the think tank Onward in research for the Levelling Up Taskforce, which counts 65 “red wall” MPs among its backers.
At the same time Rightmove, the estate agency website, warned 100,000 agreed home sales could risk being derailed by the end of the stamp duty holiday at the start of April.
Ministers have pledged an infrastructure spending boom to tackle regional inequalities but Onward director Will Tanner warned “ministers are trying to overturn decades of regional economic divergence with one hand tied behind their back” by overlooking tax policy. Its report found Londoners pay an average £481 per head in council tax, the lowest in England despite much higher property prices, and 20pc less than households in poorer areas such as the South West and East of England.
Cutting the lowest band of council tax would also benefit more than half of households in the North East compared to just 4pc in London due to the regressive nature of the tax, Onward added. But raising the rate for the top three bands would hit 15pc of all households in London and the South East, it added.
The focus on council tax cuts is at odds with Mr Sunak’s November economic statement which gave local authorities the green light to raise the charge by up to 5pc from April. Mr Sunak delivers his Budget on March 3. Mr Tanner said: “Decisions like whether to raise council tax, or to cut corporation tax as we have done for the last few years, are not regionally neutral decisions. The Treasury has probably not done enough to understand the regional consequences of its tax policies.”
MP Rob Largan, a member of the Levelling Up Taskforce, added: “Levelling up needs to be about more than spending more and delivering infrastructure projects.”
Stuart Adams, a tax expert at the Institute for Fiscal Studies, said the uneven impact of council tax was based on successive governments avoiding a politically contentious overhaul of a tax based on house prices 30 years ago.
He said: “Since 1991 house prices have grown much more quickly in London and the South East than they have in the north of England and yet the amount paid by London and the South hasn’t risen relative to the rest of the country.”
A Treasury spokesman said: “Levelling up is a key priority – which is why we’re investing £100bn in infrastructure, creating a new £4bn Levelling Up Fund, establishing new Freeports across the UK and reforming the Green Book, as well as opening a new Treasury office and UK infrastructure bank in the North in the coming year. We keep all taxes under review.”
Onward’s report came as the CBI business group also called for more support from the Chancellor as companies battle through the pandemic.
Its Budget submission calls for furlough to be extended until the end of June, and potentially longer for sectors such as aviation and hospitality.
It has also pressed the Chancellor to give firms more breathing space to pay back deferred VAT.
Separately, Rightmove warned that around 100,000 of the 613,000 home sales currently in the pipeline could be hit with an extra tax of as much as £15,000 because delays processing transactions could push them beyond the end of March deadline for the end of the stamp duty holiday.
“There may be difficulties if they have factored the tax savings into their budget calculations,” said Tim Bannister at Rightmove.
“The challenge of processing so many transactions in less than three months is made even tougher by the new lockdown restrictions, Covid-19 sickness and homeschooling further reducing capacity in conveyancing, legal searches and mortgage lending.”
Tom Clougherty of the Centre for Policy Studies warns in The Daily Telegraph that a slump in property purchases could feed through into construction, estimating that 100,000 fewer sales means 12,000 fewer homes built.
“The best thing to do with a tax as economically damaging and socially destructive as stamp duty is simply to abolish it – ideally alongside a long-overdue reform of council tax,” he said.
It comes amid reports the Chancellor could extend the stamp duty holiday, pending a review of both it and council tax, potentially replacing both with a single property charge.
“The temporary stamp duty cut is helping to protect hundreds of thousands of jobs which rely on the property market by stimulating economic activity,” said a Treasury spokesman.
“Its time limited nature is what has encouraged people to take advantage of the scheme.