The national discussion outline two distinct approaches to reforming the property taxation system in London: the Proportional Property Tax (PPT) advocated by the Centre for London think tank, and the traditional Land Value Tax (LVT) explored in a London City Hall rapporteur review paper. While both approaches seek to solve the capital’s housing crisis and capture public value, they differ fundamentally in implementation, tax structure, and underlying economic theory.

Shared Critiques of the Current System

Both documents strongly agree that the UK’s current property tax framework—comprising Council Tax, Stamp Duty Land Tax (SDLT), and Business Rates—is deeply flawed and outdated. Their shared criticisms include:

• Perverse Incentives: Current business rates and council taxes are only levied on occupied or developed properties, creating an incentive for landowners to hoard valuable empty plots or let sites fall into dereliction while waiting for land values to rise.
• Transaction Barriers: Stamp Duty is heavily criticized for penalizing mobility and reducing market liquidity, effectively trapping residents in homes that no longer suit their needs.
• Regressive Nature: Council Tax relies on frozen 1991 valuations, unfairly placing a heavier financial burden on lower-income households.
• Uncaptured Public Investment: Under the current framework, multi-billion-pound public infrastructure investments (like Crossrail or TfL rail projects) generate massive “unearned windfalls” in surrounding property values that enrich private landowners rather than returning value to the taxpayer.

Comparing the Two Approaches

The core distinction between the two proposals lies in what is being taxed and how practically it can be implemented in a dense urban environment like London.

1. Proportional Property Tax (PPT)

Advocated by the Centre for London, the PPT is an annual, continuous tax levied on the total current value of residential properties (combining land and structures), paid directly by the property owner.

• Structure: It proposes a localised, layered rate consisting of a national base rate, a local borough rate, and a London-wide regional rate (including a Mayor’s Housing Levy surcharge on properties over £800,000).
• Practicality: The Centre for London favours this over a pure LVT because it is significantly easier to design and implement, avoiding the technical difficulty of isolating pure land value in complex urban areas.
• Direct Benefits: Data models project that switching to a PPT would save the average London renter £24,000 over 10 years and save first-time buyers roughly £8,593 in their first five years by removing upfront Stamp Duty.

2. Land Value Tax (LVT)

The classic LVT explored in the City Hall paper is an annual levy placed solely on the rental or market value of the unimproved land, completely ignoring any buildings or developments built upon it.

• Structure: Tax rates are based purely on a site’s location and its optimal permitted planning use, rather than how the land is currently being utilized.
• Economic Principle: Because it ignores structures, landowners face a direct financial penalty for leaving land idle. It forces owners to develop sites to their “highest and best use” to cover the tax liability, naturally driving up housing supply and stabilizing the market.
• Implementation Challenges: Establishing an LVT requires a massive administrative effort: local authorities must legally establish landownership, continuously survey land for its “optimal use,” and defend those optimal-use valuations against legal challenges.

Summary Comparison

The table below highlights the structural and operational differences between the proposed formulas:

 

Feature	Proportional Property Tax (PPT)	Land Value Tax (LVT)
Tax Base	Total current property value (Land + Buildings).	Value of the unimproved land only (ignores developments).
Paid By	Property Owner.	Landowner.
Primary Goal	Abolish regressive taxes, lower renter/buyer costs, and generate social housing funds.	Penalize land-hoarding, unlock land supply, and force optimal development.
Rate Structure	Layered localized rates (Borough rate + progressive Mayor’s Levy).	Effective flat percentage of estimated market value based on location/use.
Implementation Complexity	Lower: Uses existing, total property valuation metrics.	Higher: Requires isolating land from buildings and defining “optimal use”.

 

Macro Goals and Revenue Use

The two models diverge on what should be done with the resulting revenue. The Centre for London explicitly designs its PPT to be revenue-positive, generating an additional £912 million a year for the capital that would be legally ring-fenced to double London’s social housebuilding rate. They supplement this with a devolved “value capture charge” around new transit lines.

Conversely, the primary focus of the LVT paper is behavior modification—using the tax as a mechanism to force speculative landowners to release sites for development. While it captures infrastructure-driven value uplifts automatically by taxing rising land costs, its main success metric is increasing overall housing capacity and reducing market costs by unlocking land supply.