THE European Commission has told the UK Government it needs an overhaul of property tax and to build more homes to prevent another housing bubble similar to the one which brought about the last financial crisis.
Commissioners have also attacked the government’s help to buy scheme which they blame for helping to fuel a spike in housing prices.
The intervention has prompted anger from by the strongly pro-EU Lib Dem Deputy Prime Minister Nick Clegg and Tory eurosceptics who have described the commission as “a bunch of unelected officials” and questioned whether they have the right to dictate to an elected government.
Setting out its 2014 economic policy recommendations for the UK, the commission 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 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.
Mr Clegg warned the European Commission should not deliver “lectures” to governments and the European Union’s executive body should focus on only what it can do and suggested it sweeps away red tape that he claimed made it harder for businesses to trade.
Mr Clegg told reporters today: “To be honest, I really do think what the European Commission should focus on is what only the European Commission can do, which is to complete the economic reforms needed across the rest of the European Union - completing the single market for instance.”
Business Secretary Vince Cable added: “I’m not sure the European Union has a great deal to add to this debate.
“We clearly do have a problem, we’re not building enough houses and this is reflected in housing inflation and there’s lots of things we’ve got to do to solve that problem.”
The two senior Lib Dems found thewmselves in rare agreement with Tory eurosceptics who also attacked the commission.
Douglas Carswell, the Tory MP for Clacton, said that “an unelected group of officials” could not tell the UK how to spend its money.
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.”
Meanwhile colleague Dominic Raab said the chancellor should treat the Commission’s advice as “spam when it arrives in his inbox”.
But a Treasury spokesman said the recommendations were “in line” with the Government’s approach.