Think tank proposes scrapping council tax

Council tax should be replaced by a "modest" tax on land value in order to stabilise house prices and stop housebuilders hoarding land, according to a report for left-wing think-tank Compass.

The report, entitled "Don't Bet The House On It: No turning back to housing boom and bust" says land value tax is one of a number of measures that need to be introduced to ensure enough homes are built to prevent a return to boom and bust house price swings.

It finds a "modest" annual tax on land is required, to "stabilise the housing market and remove the final vestiges of the poll tax." The tax would work by forced landowners to pay an annual tax based on the value of land they own, thereby discouraging landowners from sitting on undeveloped sites to wait for better prices.

The report also suggests that a "mixed economy" of new housing providers is needed, to prevent a reliance on housebuilders who have a vested interest in limiting supply.

Toby Lloyd, author of the report, who also works as a consultant advising government and local authorities for Navigant, said: "society that borrows so much to buy existing homes cannot invest properly in its long term future, and will always be vulnerable to busts. The good society requires decent, affordable housing in a fair and stable housing system. To get there we need public sector investment and leadership, and we have to reform the basics of the housebuilding industry, the land market, mortgage lending and the tax system."

He said replacing council tax and business rates with a land value tax would go a long way to preventing future housing bubbles. "Now is precisely the moment to introduce radical reform: the market has failed and the need for a change of direction is clear to everyone," he said.

Labour MP Jon Cruddas said: "Housing is the space in which the abstract world of financial derivatives meets real lives, homes and jobs. The housing market is in urgent need of reform. This report must be heeded."

The report was also welcomed by unions. Trade union congress general secretary Brendan Barber called for an "end to the house price roller coaster," which he said had triggered the UK's current recession. "We now have a unique opportunity to change the system. We need to find a way to dampen speculation as the market starts to recover," he said. "Every UK citizen should have a decent home, which means that we must greatly increase the rate of house-building."