Developers of derelict sites to get tax relief

Gordon Brown is set to bow to Cabinet pressure to provide financial incentives to regenerate Britain's run-down areas by announcing a cocktail of measures in his November pre-Budget statement.

Gordon Brown is set to bow to Cabinet pressure to provide financial incentives to regenerate Britain's run-down areas by announcing a cocktail of measures in his November pre-Budget statement.

The Independent on Sunday has learned that central to the Chancellor's announcement will be a plan to give property developers capital gains tax relief when building in derelict areas.

The idea, which has been devised by Mr Brown's chief economic adviser, Ed Balls, will help the Government meet its target of developing 60 per cent of new homes on previously developed land by 2008.

The move represents a significant victory for Deputy Prime Minister John Prescott and his super ministry, the Department for the Environment, Transport and the Regions (DETR).

It is understood that Mr Prescott and Mr Brown have for months been at loggerheads as to how to promote urban regeneration, with the Treasury preferring capital spending and the DETR favouring incentives. But Mr Brown has softened, and has held a series of discreet meetings with property industry bodies to thrash out ideas.

The move will also be cheered by Lord Rogers of Riverside, designer of the Millennium Dome and the Lloyds building in the City of London. Last June Labour's favourite architect produced a government-sponsored report into ways of regenerating Britain's poorest regions. Central to the hefty document were proposals to give property developers incentives to build on urban sites and to re-use derelict buildings.

The Government was due to act on the report last autumn, but Cabinet wrangling caused the hiatus. This incited Lord Rogers, whose patience ran out this summer when he attacked Mr Brown for failing Britain's poor regions. In a further victory for Mr Prescott and Lord Rogers, the Treasury is thought to be close to giving the thumbs-up to a final draft of the DETR's Urban White Paper, to be published in November.

DETR sources say the centrepiece of the paper is a plan to set up urban priority areas. These will be specially allocated zones which will offer further tax incentives and a relaxed planning regime. One tax break thought to be included is a zero rate of VAT on property refurbishment.

The urban priority areas will have echoes of the Conservative's urban development corporations, which spawned schemes such as Canary Wharf in London's Docklands. But Labour will be keen to avoid any parallels to the concept which was seen as the epitome of Margaret Thatcher's ethos, and which was criticised for wasting millions of taxpayers' money.

The Treasury's interest in urban regeneration is timely. New research reveals the number of derelict sites in Britain could be much greater than previously thought.

According to law firm Addleshaw Booth, in many regions the Government's official figures seriously underestimate the actual proportion of "brown field" land.