The European Commission has called on Britain to raise taxes on higher value properties, build more houses, and consider "adjusting" the Help to Buy scheme. The European Union's executive body urged the Government to reform the "regressive" council tax system as taxes are relatively higher on low value homes than high value ones.
Setting out its 2014 economic policy recommendations for the UK, the commission also urged the coalition to bring more people into paying tax to aid deficit reduction which has so far been "heavily skewed" to spending cuts. The recommendations may rankle with some in the wake of Eurosceptic Ukip's victory in the European elections and Prime Minister David Cameron's assessment of the EU as "too big, too bossy, too interfering".
The PM is also embroiled in a battle with European politicians over his opposition to federalist Jean-Claude Juncker becoming the next head of the commission. But a Treasury spokesman said the recommendations were "in line" with the Government's approach. The main policy proposals set out by the commission were related to the housing market with a warning that demand was outstripping supply.
The document said: "Action is needed to further boost the supply of houses - by creating appropriate incentives to raise supply at the local level. The authorities should continue to monitor house prices and mortgage indebtedness and stand ready to deploy appropriate measures, including adjusting the Help to Buy 2 (loan guarantee) scheme, if deemed necessary.
"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."
It added: "Remove distortions in property taxation by regularly updating the valuation of property and reduce the regressivity of the band and rates within the council tax system. Continue efforts to increase the supply of housing." The commission recommended a broadening of the tax base and an increase in capital spending to help reduce the structural deficit but also promote growth.
It said Britain should "pursue a differentiated, growth-friendly approach to fiscal tightening by prioritising capital expenditure. To assist with fiscal consolidation, consideration should be given to raising revenues through broadening the tax base. Address structural bottlenecks related to infrastructure, skills mismatches and access to finance for SMEs to boost growth in the export of both goods and services."
The commission broadly praised action taken so far on extending childcare provision and reforming the benefits system, but insisted more must be done on apprenticeships and skills. The document said: "The labour market suffers from skill mismatches and the authorities are attempting to re-skill the workforce to address both unemployment and a shortage of high-quality vocational and technical skills.
"While there have been efforts to improve the quality of apprenticeship programmes, further efforts are needed. Moreover, the qualifications system remains complex and needs to be streamlined to facilitate universal recognition and a higher level of engagement by employers."
It also raised concerns over the regulation of private sector funding for infrastructure projects and problems with implementing the Universal Credit benefit system. A Treasury spokesman said: "The Government's long-term economic plan is working, delivery economic security for hardworking people. The European Commission continues to support the UK Government's strategy including its commitment to deficit reduction. The Commission's recommendations are in line with the Government's approach."
Commission president Jose Manuel Barroso said: "Growth has returned. Employment is set to rise from this year onwards, albeit slowly, since there is usually a time lag before growth translates into jobs. Financial markets have stabilised. And public finances are today much healthier.
"But the recovery is fragile. More effort will be required to lift Europe firmly out of the crisis and get back to solid growth. With these recommendations, the Commission is pointing the way forward. We believe that member states must now play their part in seeing these reforms through, even if we know that sometimes they are politically unpopular.
"Only by working together under the European Semester - this collective exercise of dialogue between the European Union institutions and the member states - can we deliver a stronger recovery. This is what citizens are asking of us. They want results, they want growth and jobs, and we owe it to them to step up our efforts."
Andy Silvester, campaign manager at the TaxPayers' Alliance, said it was wrong to increase tax on high value property. He said:"The housing market is already over-taxed and over-regulated, and higher taxes on high-value property would only strangle much-needed supply further. Developers are already stung by numerous taxes when building property and stamp duty creates perverse incentives which disrupt the market. The Government must relax planning restrictions, as no amount of headline-grabbing wealth taxes will solve Britain's housing crisis."
Matthew Elliott, chief executive of Business for Britain said: "The European Commission should spend more time worrying about how it makes the EU more competitive, rather than suggesting how to hamstring the UK economy with high taxes. This is further evidence that EU should be let nowhere near tax policy of its member states.
"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."