Europe Calls on UK Government to Build More Homes, Raise Council Tax on Expensive Houses & Reign in Help to Buy
As part of its annual scheme of providing economic recommendations to member states, the Commission of the European Union has advised the UK coalition government to review and subsequently revalue several council tax bands. The commission described the UK’s council tax system as regressive.
Commissioners from what is essentially the executive body of Europe advised that:
“Reforms to the taxation of land and property should be considered to alleviate distortions in the housing market. At the moment, increasing property values are not translated into higher property taxes as the property value roll has not been updated since 1991 and taxes on higher value property are lower than on lower value property in relative terms due to the regressivity of the current rates and bands within the council tax system.”
According to officials in Brussels, this reorganisation of property taxation would have the dual effect of cooling the market by reducing the rate at which house prices are currently rising, while simultaneously assisting the government in the administration of their deficit reduction programme by suppling more cash to the Treasury.
The Commission’s suggestions came as part of a broader set of recommendations related to UK government policy, particularly as it relates to taxation. The recommendations declared that, while the coalition’s austerity programme has aided the country’s economic recovery to this point, it is time for the government to realign their fiscal policy and focus more on taxation, rather than more spending cuts, in order to realign the economy and help cut the deficit.
The main points of advice offered by the Commission’s report in relation to the UK housing market implored the Bank of England’s Financial Policy Committee to enhance the level of transparency surrounding its implementation of macroprudential regulation and the impact caused by these measures. The European Commission also advises that the government should “deploy appropriate measures to respond to the rapid increases in property prices in areas that account for a substantial share of economic growth”.
Put simply, this amounts to the Commission recommending that the government review and modify the soon to be released Phase Two of its flagship Help to Buy scheme, which, unlike Phase One, is not limited to new build properties; and take immediate steps to assuage the potential negative effects for the economy caused by high mortgage indebtedness, particularly as it prepares for the inevitable and ostensibly increasingly imminent rise in interest rates.
Further suggestions presented by Commission President, Jose Manuel Barroso, related to the relatively low level of new housing stock currently coming onto the market. According to the report: “Action is needed to further boost the supply of houses – by creating appropriate incentives to raise supply at the local level,” because the current lack of supply, “combined with low interest rates and easier terms for mortgage lending” have conspired to inflate “house prices in parts of the United Kingdom, particularly in London”. Current prices rises are currently proving to be somewhat of a double edged sword for the property market, proving to be good news if you are you are looking to sell your home, but bad news for home buyers; while the repeated warnings from many commentators that the developing housing bubble is set to burst soon, implies negative connotations for the economy as a whole.
Perhaps unsurprisingly given the recent inherent rejection of EU interference constituted by the recent European Election results, the Commission’s recommendations have been met with hostility from some quarters.
Several Tory backbenchers have raged their way through television interviews across a number of different channels in the hours since the recommendations were issued. The general consensus they present suggests they are in no mood whatsoever to listen to anything Europe has to say at present in regards to anything that touches upon British sovereignty, particularly as it relates to UK based fiscal policy.
Matthew Elliott, chief executive of the Eurosceptic organisation Business for Britain, argued that the report constituted “further evidence that the EU should be let nowhere near tax policy of its member states”. Mr Elliott, who is also the founder of lobbyist group Tax Payers Alliance went on to say that
“Leaders in Brussels appear not have taken on board the resounding message from the recent elections that Britain wants less interference from the continent, not more.” He claims that “higher taxes on high-value property would only strangle much-needed supply further.”
Despite all the anti-EU sentiment that was being directed toward Mr Barroso and the EC report he presented yesterday, a spokesperson for the treasury claimed that the European Commission was “right” and more work was indeed required to secure the dependency of the economic recovery. After defending George Osborne’s Help to Buy scheme as an “aspirational policy” that would “remain a key part” of the government’s “economic plan”, the source said that the government had listened to the EC recommendations “with interest” and that they were broadly “in line” with prospective government economic policy. The spokesperson went on to echo the oft repeated government line that measures introduced to allow the Bank of England the ability to directly influence the housing market served as evidence of the government’s vigilance towards the economy.
In effect, all the signs point toward an impending refusal by David Cameron, who last week described the EU as “too big, too bossy, too interfering”, to order any changes to the government’s current economic policy.
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