Hello, I’m John Fender and I’m Professor of Macro-Economics at the University of Birmingham.
I’d like to talk about two important problems we have in the UK at the moment and two suggestions
I’d have for, if not solving these problems, at least mitigating them.
The first problem we have is the high inequality of income and wealth and the second problem
is a fairly massive housing problem.
I think we all know that housing is very expensive and a lot of younger people find it impossible
or very difficult to get onto the housing ladder and of course these problems are not
unrelated.
My first suggestion policy wise is to reform the council tax.
Council tax, which is the one local tax we have in the UK at the moment, is unsatisfactory
in a number of ways.
In particular it’s based on 1991 valuations and it also implies a very regressive relationship
between the value of a property and the council tax payable.
For example, in Westminster where council tax is lowest in the UK, you can have a £20m
property and pay less than £1,400 council tax, whereas other parts of the country where
you pay much more council tax on much cheaper properties.
The proposal for reforming council tax I’d have is something which has been suggested
a number of times by distinguished people and it would involve imposing a proportional
tax.
It could be a tax of about 1% on the best estimate one can have of the current market
value of a property.
So a ball park rate as I said would be 1%, so if one has a £250,000 house, one would
pay £2,500.
Now it’s easy to see how this would affect the distribution of income and wealth, particularly
those at the bottom would benefit and those at the top would suffer, and it would contribute
towards solving the housing problem in as much as it would be easier to buy cheaper
properties.
However, there is a major problem as far as implementing it, namely that a lot of people
who live in expensive properties would find their council tax bills would rocket and given
that a number of these people are influential politically, they would undoubtedly lobby
to prevent it.
So this is where my second policy proposal comes in and that is to do with stamp duty
which is a tax on the purchase of property.
It’s rather different from council tax where there’s a regressive relationship between
the price of a property and a tax.
With stamp duty the relationship between the tax and the price of the property is extremely
progressive and the tax rises to 15% - or it can be 15% on properties over £1.5m.
Now I think it’s important given the housing crisis we have at the moment that the housing
stock we have be used efficiently, that people aren’t under-occupying property that people
who have large families but whose families have moved away, would be perhaps encouraged
to move from large properties to smaller properties, but the cost of moving house does deter this
to some extent.
So my proposal would be to reduce rates of stamp duty quite markedly.
Perhaps one could have a top rate of about 2% and this would of course encourage people
to buy and sell properties and hence would ensure that the existing housing stock is
utilised much more efficiently.
Now it would also help mitigate the political problem I mentioned as far as council tax
because in reducing the stamp duty payable on more expensive properties, one would tend
to raise the value of these properties, so that would offset to some extent the negative
effect of the increase in council tax.
And it would also mean that one could cut stamp duty without giving a bonanza on balance
to rich people.
One would imagine the headlines if a policy proposal came in which just reduced stamp
duty, you know, bonanza for the wealthy and all that.
By combining the two proposals I think one can mitigate the political problems associated
with either and make some progress – perhaps not massive progress – but some progress
towards solving the two problems – the problems of inequality and the housing problem I mentioned
earlier.
So if anybody is interested in developing these proposals, please do get in touch.