If we must have a new tax, it should be this

‘There’s a tough road ahead,” said Jeremy Hunt on Friday. The Chancellor was responding to data showing the economy shrank 0.2pc between July and September.

Since then, surveys suggest GDP has dropped even more. The UK is most likely entering recession – two successive quarters of economic contraction. And 2022 was meant to be the year of the post-Covid bounce-back.

This Thursday’s Autumn Statement is expected to impose a slew of tax increases going way beyond the well-flagged corporation tax rise from 19pc to 25pc. “To achieve long-term sustainable growth, we need to grip inflation, balance the books and get debt falling – there is no other way,” said Hunt last week.

But with the economy entering a nosedive amid a cost of living squeeze, is this the time to be putting taxes up sharply? Interest rates are rising and manufacturing output fell an eyewatering 2.3pc over the last quarter.

Hunt’s measures will be largely disguised, using frozen thresholds and slashed allowances to avoid higher headline tax rates. But the impact on millions of struggling firms and households means this Autumn Statement could trigger a nasty voter backlash.

Sharp tax rises risk compounding the existing slowdown, sapping already fragile consumer and business confidence, and provoking a longer and deeper recession. Dogmatic and ill-timed fiscal tightening, by repressing growth further, could further damage the state’s balance sheet – sparking the very rise in government borrowing costs such consolidation is meant to avoid.

There are anyway other credible ways to raise revenue that don’t involve increasing the load on hardpressed firms and families – and that would encourage growth. One method, used in many countries but not the UK, relates to the housing market and land value capture.

Already, the inheritance tax threshold has been stuck on £325,000 since 2009, a freeze about to be extended until 2028. That drags ever more owners of modest homes into the IHT bracket – homes typically bought via years of mortgage payments made from post-tax income.

House sales have lately slowed, with new-buyer inquires falling for a sixth consecutive month in October, according to the Royal Institution of Chartered Surveyors. There is much talk the market is “on the turn”.

Yet prices remain sky high, having risen 53pc on average, to £340,000, during the decade to 2021. Average wages, over the same period, were just 19pc up. The causes of rampant house price growth and related unaffordability are complex and multi-faceted. But the main reason is our chronic shortage of homes.

The UK needs around 250,000 new homes each year to meet population growth and trend immigration – some 2.5m new builds per decade. House building hasn’t reached such levels since the late 1970s. Over the last 20 years, in fact, it’s been under half the required rate.

That’s why the share of 25 to 34-year-old owner-occupiers has plunged from 67pc to 38pc since the 1990s, with well over half a generation now locked out of property ownership at this crucial family-forming age.

Overall owner-occupancy has fallen from 73pc to barely 60pc – below the EU average. And lower down the income scale, an endemic shortage of social housing is driving a shocking rise in overcrowding and homelessness.

Since 2013, the absurd Help to Buy loan scheme has stoked demand in the face of inadequate supply, driving up prices further. That has handed even bigger profits to large developers, while channelling desperate home buyers into often substandard new builds – and pushing housing costs higher for the vast majority who can’t access the scheme.

What’s needed is radical supply-side reform, shaking up our over-mighty housebuilders. As local councils have granted more and more planning permissions over recent years, big developers have staged a deliberate go-slow, making higher profits by producing fewer homes to keep prices rising.

That’s why we need to inject competition into this once vibrant sector, helping small developers – which build out permissions quickly to aid cash flow. Developers producing under one hundred homes a year now build barely a 10th of all new homes, down from almost a third before the 2008 global financial crisis, which blew so many of them away. The UK’s top 10 housebuilders, meanwhile, build almost two thirds of new supply. That’s why a House of Lords inquiry concluded the industry “has all the characteristics of an oligopoly”. A full Competition and Markets Authority inquiry is long overdue.

Yet the nub of the problem is our opaque, dysfunctional land market. When residential permissions are granted, land values can rocket many hundredfold – with this vast “planning gain” going almost entirely to landowners, developers and intermediate “land agents”.

It should instead – and here’s the tax proposal – be significantly shared with local authorities. That would dampen price speculation, resulting in cheaper land and, therefore, more affordable homes. Such land value capture would also generate funds to build schools, hospitals and other infrastructure, making new homes more popular with existing locals, transforming the fraught local politics of planning.

Existing “Section 106” deals are meant to help the state claw back some planning gain – but just reinforce the status quo. Powerful developers often negotiate away their obligations to build communal assets and affordable housing – threatening councils, under pressure from Whitehall to deliver homes, with further delays. Small builders lack such power, so are forced to fulfil their community obligations, often up front, making small developments unviable.

Only bold action can break this deadlock. So I propose a transparent system splitting planning gain 50-50 between developers and local authorities. Planning gain is shared in this way, raising huge sums then channelled into infrastructure and other public services, across much of the world. The UK is an outlier.

Yes, this would be a new tax, but a tax that could be at the heart of a set of policies to get the houses built this country so desperately needs. It would also unleash the kind of building boom that has rescued Britain from so many recessions in the past.

‘I propose a transparent system splitting planning gain 50-50 between developers and local authorities’