Stamp duty cut on new city homes

Gordon Brown is planning to slash stamp duty on new homes on brownfield sites to encourage the middle classes back into towns and cities.

Gordon Brown is planning to slash stamp duty on new homes on brownfield sites to encourage the middle classes back into towns and cities.

The Chancellor has given ground after a lengthy behind-the-scenes battle with John Prescott to reduce stamp duty for developers and buyers of new flats and houses on reclaimed industrial sites in his next budget.

Negotiations between the Treasury and Mr Prescott's Department of Environment, Transport and the Regions are continuing over the detail, but the Independent on Sunday has learnt that stamp duty will be reduced to encourage investment by landowners, developers and homeowners. A reduction of 50 per cent would cut £500 off the cost of buying a new £100,000 home.

"The whole chain is involved," said a Government source. "It is an appetiser to attract homebuyers back into the inner cities. We want to put life back into the town centres and stop people going out to greenfield sites in the country."

A cut in stamp duty for homes on brownfield sites - to be announced in the forthcoming urban white paper and the Chancellor's pre-budget statement next month - will benefit thousands of homebuyers. There could be a cut-off point for more expensive homes where developers believe it would make little difference to rich buyers, and it will not extend to refurbished flats or houses on brownfield sites.

Stamp duty is levied on the sale of homes at the rate of 1 per cent between £60,000 and £250,000. It was raised in the last budget to 3 per cent for homes valued at £250,000 to £500,000 and 4 per cent thereafter.

The move was welcomed yesterday by developers of London's Docklands where homes can cost from £230,000 to £500,000. "This will be good news for purchasers and developers," said a spokesman for Fairview Homes, who are selling 165 flats and houses on brownfield land at Westferry Quay in the Isle of Dogs.

Mr Brown was happy to cut stamp duty for developers buying property to renovate but was reluctant to extend the exemption to the first sale after renovation or to new homes built on derelict sites.

The idea was recommended by the urban task force under the architect Lord Rogers, which also recommended cuts in VAT for builders developing property on brownfield land.

Mr Prescott was reported to be "at loggerheads" with the Chancellor after Mr Brown also threw out a proposal by Lord Rogers to cut VAT on building on brownfield sites as part of the drive to save rural areas from urban sprawl.

Other incentives to focus more building on brownfield sites will include cuts in capital gains tax for profits on inner-city schemes. "Lord Rogers set up VAT on a pedestal but we think there are other things we can do," said the Government source.

"We can attract more people back into the towns if we can make property more affordable. It cannot work on its own, though. It will need to go with the work we are doing on health and education and tackling crime in the inner cities."

Mr Prescott and Mr Brown will go to Peckham, south London, on Tuesday to announce the 88 communities across the country that will benefit from a £800m fund to improve the inner cities.

The neighbourhood renewal fund, which was included in the Chancellor's comprehensive spending review, will be spread over three years with £100m next year, rising to £400m in 2003-4.

In March Mr Prescott committed the Government to building 60 per cent of new housing on brownfield sites by 2008, but without the support from the Treasury his goal looked doomed. It will be the Government's reply to Tory plans for the inner city unveiled last week by William Hague.