Professor John Muellbauer from the University of Oxford has put forward a proposal for reforming property taxation in the UK, arguing that current high prices of houses and land have negatively affected economic productivity and increased inequality. He suggests that political conditions have shifted, making such reforms more feasible than before.
"For years it was thought that the influence of property owners made reform politically infeasible. However, economic and political circumstances have changed. The government urgently needs to announce revenue-raising measures in the Autumn Budget. There is a widespread perception that too many ‘hard decisions’ of the last year have been borne by the vulnerable and less privileged. Proposals such as a 2% tax on total wealth over £10mn are now headline news, reflecting a greater appetite to redistribute the tax burden onto broader shoulders," Muellbauer said.
He outlined a two-part plan aimed at making property taxation fairer. The first part would involve replacing the top two Council Tax bands with a wealth tax of 0.5% on property value for UK taxpayers, covering around 1.14 million properties in England and Wales. For non-UK owners and second home owners in these bands, he proposes a higher rate of 1%. A deferral scheme would be included to protect pensioners who are asset-rich but cash-poor.
"Council Tax is probably the most regressive property tax in the world. In each local authority, the poorest homes pay the highest tax as a percentage of their property value, while the richest pay the least. Not only is this locally unfair, but the tax is also regionally regressive," he stated.
He further explained: "A home in the top band (H) raises around £4500 in Gateshead and Nottingham, but only £1060 in Westminster. Because it is undergoing renovation, Forbes House in Belgravia, worth around £300mn, escapes even this low rate."
Muellbauer noted governmental reluctance toward broad reforms due to fears about affecting large numbers of voters: "Unfortunately, governments are nervous of whole scale reforms that affect broad swathes of voters - even if there are many more winners than losers."
He argued that limiting changes to just the top two Council Tax bands could minimize resistance: "A broad revaluation or reform proposal generates uncertainty and therefore resistance, but confining property revaluation and tax reform to the top two Council Tax bands limits both the costs of revaluation and the political push-back."
The proposed system would use an Automated Mass Valuation model currently being used by Welsh authorities for lower-cost valuations per property.
For pensioners wishing to defer payment under his plan: "I propose that pensioners can opt to defer payment but with a 0.6% tax rate instead of the 0.5% for cash payers... Hence after 10 years of deferral, 6% of the value realised would be paid in tax." Discounts would also be available based on Energy Performance Certificates.
The new approach would see HMRC collecting taxes from owners rather than tenants; excess revenue beyond what Council Tax previously raised would go to central government so no local authority loses out.
To facilitate transition and encourage market activity, Muellbauer recommends sharply reducing Stamp Duty Land Tax rates on expensive properties—a move expected to boost transactions and increase Treasury revenues over time.
Muellbauer anticipates some decline in high-end property prices during implementation—particularly in London—but expects benefits including fewer empty luxury properties owned by foreign investors and improved affordability for domestic buyers seeking mortgages or job mobility.
The second element involves introducing a land value tax at 1% on farm or forest land—and all unoccupied land—above £40,000 per hectare (excluding most homeowners/farmers). He estimates this could generate at least £5 billion annually for public spending priorities like infrastructure or social housing programs.
Muellbauer highlighted longstanding support among economists for land value taxes as minimally disruptive compared with other forms: “Economists have long considered land value taxes as the least distortionary form of taxation.” Under his plan most farmland remains exempt; options on developable land would need registration for transparency purposes.
He argues this policy shift could incentivize development by imposing holding costs on undeveloped plots while capturing gains from planning consents for society rather than individual landlords—supporting affordable housing initiatives through enhanced “land value capture.”
In summary, Muellbauer believes targeting only high-value properties makes reform politically acceptable while helping address fiscal constraints facing government investment programs.