Written evidence submitted by Shelter
INTRODUCTION
Shelter is a charity that works to alleviate the
distress caused by homelessness and bad housing. More than one
million people a year come to us for advice and support via our
website, helplines and national network of advice centres. This
work gives us direct experience of the various problems caused
by the shortage of affordable housing across all tenures.
We welcome this opportunity to input into the Committee's
review of the fundamental principles of tax policy. As housing
experts we wish to focus our submission on the taxation of land
and property. Key housing-related taxes include council tax, stamp
duty, capital gains tax, inheritance tax and income tax from rented
properties. Each of these taxes is, in their current form, problematic
to some extent.
The economic crisis has highlighted the inadequacies
of our housing market. Yet the housing taxation system, which
plays a huge role in housing and the wider economy, has often
been overlooked and long term reform dismissed as too complex
or too difficult. With the recent Mirrlees Review describing taxation
of land and property as "inefficient and inadequate"[18]
it is clear that housing taxes can no longer be ignored.
WHAT ARE
THE KEY
PRINCIPLES WHICH
SHOULD UNDERLIE
TAX POLICY?
Shelter believes that the property taxation framework
should contribute to the following four key objectives:
1. Promote stability in the housing market
Housing booms and busts lead to economic instability.
When house prices are over-inflated, too many people are unable
to access a home and too many need to rely on risky and unsustainable
credit, making them more vulnerable to the threat of repossession.
When house prices crash, negative equity can become a reality.
Instability is also a poor foundation for policies to tackle entrenched
problems like the insufficient supply of new homes.
2. Reduce housing affordability pressures
Whether it's young people struggling to get a foot
on the housing ladder or families unable to make rent payments,
unaffordable housing is pushing millions to the brink. Recent
Shelter research indicated that some 2 million people are using
credit cards to pay their rent or mortgage.[19]
3. Balance out tenure choices
Political rhetoric often focuses on subsidies for
low income households in the rented sector. But the reality is
that government awards huge tax advantages to homeowners,[20]
which leads households to believe that home ownership is the only
rational option and so distorts tenure choices.
4. Lessen housing wealth inequalities.
Nearly two thirds of households in England are owners
and - depending on when and where they bought - many have seen
their assets grow substantially and can pass their housing wealth
on to their families. Others were not so lucky - indeed the divide
between housing "haves" and "have-nots" has
contributed to a wealth inequality so severe that some commentators
have warned of a gulf between rich and poor not seen since the
Victorian era.[21]
At present, the taxation of property does little
to help meet these objectives. Council tax, the biggest housing
related tax, is highly regressive and based on twenty year old
property valuations. Stamp duty has no clear economic rationale
and a highly inefficient "slab" structure. Capital gains
tax is currently charged only on second homes and not primary
residences, but is easily avoidable.
Shelter warmly welcomes the fact that these issues
are now being debated and urges the committee to promote further
discussion in Parliament. There are a number of wide-ranging reforms
that might be suggested for property taxation, including:
— Reforming
council tax, or replacing it with an annual property tax or a
land value tax.
— Reforming
the "slab" structure of stamp duty tax, or scrapping
it in favour of another kind of property tax.
— Reviewing
wealth taxes, including those related to housing such as inheritance
tax and capital gains tax.
As discussed in Shelter's report, Rethinking Property
Taxation, it's clear that fundamental reform is needed.[22]
But we have also identified some smaller scale anomalies in the
property taxation system that should be addressed. For example:
— The
rent-a-room scheme gives a tax exception to owner occupiers who
let out a furnished room, ie take in a lodger. This scheme helps
to encourage supply of affordable rented accommodation, but the
low, outdated threshold discourages would-be landlords. Shelter
proposes that the threshold is updated to better reflect rental
inflation.[23]
— Councils
can currently offer council tax discounts to owners of second
homes or long term empty homes. This practice rewards poor use
of the housing stock and loses the exchequer tax income - Shelter
believes there is a case for abolishing these discounts.
CONCLUSION
Given the fiscal context, the lack of affordable
housing and the extent of imbalance within the housing market,
Shelter believes that we must start considering ways to achieve
a fairer, more progressive system of property taxation, based
on the principles of stability, easing affordability pressures,
equalising tenure choices and reducing housing inequalities.
January 2011
18 Mirrlees et al., Tax
by design, Institute for Fiscal Studies 2010, accessed via
http://www.ifs.org.uk/mirrleesReview/design Back
19
Shelter press release Two million people use credit cards to
pay mortgage or rent, shelter reveals, 06 January 2010 Back
20
Hills, J. Ends and Means: the future role of social housing
in England, CASE report 34, 2007 Back
21
Dorling, D, & Thomas, B, "Know your place: inequalities
in housing wealth", The Great Divide, Shelter 2005 Back
22
Crawshaw, T. Rethinking Property Taxation: Options for Reform,
Shelter 2009 Back
23
See http://www.spareroom.co.uk/raisetheroof/what-is-the-raise-the-roof-campaign/
Back
| 
