Britain’s current approach to household taxation needs reform. Council tax and stamp duty are unpopular, unfair and impractical.

Council tax is regressive, so average houses in poor areas pay more to the local government than villas in rich areas. For example, a category D house in Blackpool pays £2,277 in council tax per year, while in Westminster it pays less than half that: £973.16. Cutting council tax is the second most popular tax cut among voters.

Stamp duty – which is charged on homes valued over £250,000, with a higher limit for first-time buyers – makes moving more expensive and hampers economic growth and home ownership. In the South East, homes valued under £250,000 are sold every 11 years, while more expensive homes are sold only once per generation, every 26 or 27 years. Only 23% think stamp duty is fair.

Onward proposes a new innovative way to replace local tax and stamp duty with a proportional property tax. A fairer property tax was written by Onward’s chief economist Tim Leunig, who invented the short-time work program and worked as a senior government advisor for over a decade.

Onward’s “horizontal” proportional property tax to replace council tax and stamp duty is a new idea. It would mean that homeowners – not renters – pay a proportional local services tax on homes valued under £500,000 and a national levy on those above that. A minimum payment of £800 for each home would be set to fund local governments. The local tax rate would be set by councils, but an average rate of 0.44% would replace council tax revenue. The national rate could be 0.54% for homes between £500,000 and £1 million, and 0.81% for anything above that.

Unlike other proposals which propose a single proportional tax, where councils and the government each set a portion of the rate and share the revenue, this proposal is simpler. It means that homes in Barnsley, where few pay stamp duty, will be valued high enough to pay a national property tax. Such an approach would better fund local authorities without requiring councils in poorer areas to set a high value or rely more heavily on government grants. It would also avoid a scenario where the majority of property taxes for people in wealthier areas go into the Exchequer rather than funding local services.

Replacing council tax with a local proportional property tax on homes under £500,000 is revenue neutral. It also reduces the number of homes that need to be valued from 25 million to 16 million. These homes are also easier to value. Replacing stamp duty would take longer and initially cost £10 billion a year in lost revenue, as anyone who has already paid stamp duty on their home should be exempt from it – so they are not taxed twice – until they move. Ultimately, it would provide a more reliable source of revenue for the government.

Tim Leunig, chief economist at Onward, said: “Council tax and stamp duty are terrible taxes. They are unfair and unpopular, and both should be replaced by proportional property taxes. Council tax should be replaced by an annual tax on all homes, and stamp duty by an annual tax only on homes worth £500,000 or more.

“These proposals would make it easier and cheaper to move to get a better job or to be near family, and they would be fairer too. It shouldn’t be the case that a terraced house in Burnley fetches more than a mansion in Kensington – and that wouldn’t be the case under these proposals.”

Andrew Dixon, founder of Fairer Share, said: “In recent years, the push for local government finance reform has gained significant momentum. A growing consensus among parliamentarians, think tanks, economists and activists underlines the urgent need to replace the regressive council tax and anti-aspirational stamp duty with a fairer proportional property tax. Tim Leunig has made three key recommendations: making a clear distinction between national and local funding, introducing a minimum payment to secure key local services and advocating for a more efficient property valuation process. These innovative proposals deserve serious consideration by the new government and we urge them to give this paper the attention it deserves.”