London households are effectively receiving a £3.1 billion annual subsidy due to a council tax system that has not been updated for 35 years, a major new report has claimed.
The “Home Economics” report, published on 24 September 2026 by the Resolution Foundation, argues that the current system is heavily biased against the North and Midlands because it remains tethered to property valuations from April 1991.
For residents in West Sussex and the wider South East, the research highlights a significant regional divide. The South East is identified as one of only three areas in England—alongside London and the East of England—where households do not “overpay” for property taxes relative to the current market value of their homes. In contrast, 85% of households in the North East are projected to be overpaying by 2030-31 if the system remains unchanged.
The think tank’s analysis found that while property prices in Inner London have surged 7.3-fold since 1995, those in the North East have risen by a more modest 4.2-fold. Because council tax bands have never been updated to reflect these divergent growth rates, the effective tax rate on a £100,000 home is projected to be nearly three times higher than that on a £1 million home by the end of the decade.
The Proportional Property Tax Proposal
To address what it describes as a “broken” system, the Resolution Foundation has proposed a radical overhaul ahead of the October 2026 Budget. The centrepiece of the plan is the replacement of both council tax and stamp duty on primary residences with a new “proportional property tax.”
Under this proposal, the tax would be set at a flat rate of 0.7% of a property’s current value. The think tank suggests this would be revenue-neutral for the government while significantly redistributing the tax burden.
The impact of such a shift would be felt most acutely in the capital. The report estimates that 80% of London households would see their tax bills increase under a proportional system. Conversely, 85% of households in the North East would see their annual tax bills reduced.
Impact on the South East
While Londoners are the primary beneficiaries of the current 1991-based bands, the South East also benefits from the status quo compared to northern regions. Because property values in areas like West Sussex have generally outperformed the national average since the early nineties, the “effective” tax rate paid by many local homeowners is lower than that paid on similarly priced properties in the North.
The report notes that the current system’s reliance on outdated data creates “huge and arbitrary” differences in what people pay. Beyond the regional unfairness, the think tank argues that stamp duty—which would be abolished under their plan—currently acts as a “tax on moving,” discouraging people from downsizing or relocating for work.
While the government has not confirmed any plans to adopt the 0.7% proportional tax model in the upcoming Budget, the report adds to growing pressure from various campaigns for a revaluation of England’s 25 million domestic properties.