Rachel Reeves is reportedly considering bringing in new higher bands of council tax to target the owners of expensive homes.
With weeks to go until her crunch Budget, the chancellor is hoping that the new higher council tax bands will help her plug a hole in the nation’s finances worth tens of billions of pounds.
No decisions have been taken, but Ms Reeves has said higher taxes on the wealthy will be “part of the story” in November 26’s Budget.
Economists have repeatedly warned Ms Reeves in recent months that a combination of Labour U-turns, higher borrowing and sluggish economic growth means she must raise taxes or tear up her flagship borrowing rules.
The FT quoted one source as saying: “The idea of increased taxation on high-end homes is well established. The discussion is about how you do it.”
The move would raise several billion pounds, according to the Financial Times.
How much homeowners pay in council tax, a levy on residential properties by local government, depends on the band – with band A for the lowest value properties up to band H. But the system has been heavily criticised because it is based on the value of properties in 1991, before a huge boom in recent decades.
Properties which are currently in band H are those that were valued at above £320,000 in 1991.
The idea of creating new council tax bands for England’s most expensive homes in England was first considered by the then Conservative chancellor George Osborne in 2012.
He backed additional council tax bands, with the money going to the Treasury, not local authorities. To deal with some of the expected problems that such a system would create, the elderly and other “cash poor” owners would have been allowed to defer their higher council tax bills until they died. In the end, however, the prime minister David Cameron blocked the plan.
Michael Sherwood, former Goldman Sachs executive, told the FT that council tax was “very unfair”, adding: “If you have more expensive homes, you should pay more for them.”
Ruth Curtice, head of the Resolution Foundation think tank, said: “On its own it wouldn’t sort out the mess that is property taxation, but we do already pay council taxes and you’d be asking the wealthy to pay a bit more.”
Lucian Cook, from the estate agent Savills, said: “Additional council tax bands would potentially be less damaging than a pure mansion tax”.
Edward Troup, the former top civil servant at HM Revenue & Customs, said higher taxes on expensive houses could help Ms Reeves if she was also forced to put up taxes on what the government defines as “working people”.
He said: “The idea of an effective and painful mansion tax on the wealthy feels like part of a consistent political package.”
The Scottish government is also consulting on the idea of introducing extra council tax bands, as it seeks to make its own property tax system more progressive.
The Treasury has been approached for comment.
