Incoming British prime minister Andy Burnham is facing warnings that introducing a nationwide land tax too quickly could sharply reduce property values and create broader risks for the country’s financial system.
Burnham, who is preparing to succeed Keir Starmer as UK prime minister, has supported replacing several existing property-related taxes with a levy based on the underlying value of land. The proposal has attracted support from sections of the Labour Party seeking to increase taxation on wealth, as well as some free-market economists who regard land taxes as less economically damaging than taxes on income or business activity.
However, Charles Goodhart, a former Bank of England interest-rate setter, warned that a rapid transition could immediately push down house and land prices. Because property is widely used as collateral for mortgages, corporate loans and other financial assets, a severe decline in valuations could place pressure on banks and potentially trigger a financial crisis.
For more than a decade, Burnham has advocated replacing council tax and stamp duty with a land-value tax. Council tax is charged mainly according to residential property valuations, while stamp duty is imposed when homes are purchased.
Together, the two taxes currently generate approximately £75 billion, or US$101 billion, annually for the UK Treasury. Any replacement land tax would therefore need to raise a similar amount to prevent the government’s already constrained financial position from deteriorating.
British tax specialist Dan Neidle has supported the proposal and suggested that a land tax could also replace business rates. Including that revenue would increase the amount the new system would need to generate to around £110 billion annually, based on figures from the Office for Budget Responsibility.
Neidle nevertheless acknowledged that the transition would need to occur gradually to avoid placing sudden financial pressure on homeowners, landlords and businesses.
Supporters have pointed to Canberra as an example of how such a reform could be introduced. The Australian capital is 14 years into a planned 20-year transition from stamp duty towards a broader land-tax system.
The lengthy Australian timetable demonstrates the political and economic difficulty of implementing the change quickly. With only two or three years expected before Britain’s next general election, analysts question whether Burnham would have enough time to begin a similarly gradual reform and demonstrate its benefits to voters.
Goodhart said the transitional challenges would make it difficult for a land tax to provide an immediate solution to Britain’s fiscal problems. He argued that the levy would have to be introduced so carefully that it could not rapidly restore stability to the public finances, making shorter-term tax or spending measures more likely.
Tom Clougherty, the former head of the free-market Institute of Economic Affairs, also supports land-value taxation in principle. However, he said it would be unrealistic to expect the government to collect significantly more from property-related taxes than it already does. He similarly called for a phased transition.
A land-value tax differs from a conventional property tax because it focuses on the value of the land rather than the buildings constructed on it. Building a new home, improving an existing property or adding an extension would therefore not automatically increase the tax bill.
Economists who favour the policy argue that it does not discourage construction and development. They also say it allows governments to capture part of the increase in land values created by public infrastructure projects, such as new roads and railway connections.
Because land cannot be relocated to another jurisdiction, the tax may also be harder to avoid and less likely to distort investment decisions than taxes imposed on employment, company profits or commercial activity.
Despite those potential advantages, economists warned that the proposal would not necessarily provide the Labour government with enough immediate revenue to finance significantly higher public spending.
Britain’s fiscal position remains under pressure from weak economic growth, demographic changes, rising public-service costs and global market movements that can increase government borrowing expenses. A recent Resolution Foundation assessment estimated that the incoming government faces an annual fiscal challenge of roughly £330 billion.
Former Bank of England policymaker Jonathan Haskel told lawmakers that the UK economy currently has little capacity for a major expansion in government spending.
As a result, Burnham’s government may need to prioritise fiscal stability and pursue gradual tax reform rather than introducing a large land-value levy immediately. Any rapid change could affect property owners, mortgage borrowers, lenders and the wider banking system, making the timing and design of the policy critical.
