MPs favour phasing out mortgage tax relief

MOST MPs are in favour of phasing out mortgage interest tax relief for all and targeting the pounds 5.3bn savings to help homeowners with low incomes, according to a survey by the housing charity Shelter.

Yesterday, in a move which could be the first step down this road, Peter Lilley, the Secretary of State for Social Security, announced plans to end high pay-outs of mortgage interest to people with large mortgages who have become unemployed.

Mr Lilley's proposal would restrict help with interest payments on mortgages up to a ceiling of pounds 150,000 for all new claims this year, and lowered to pounds 125,000 next year. The restrictions could be introduced by June.

However, the savings to the Treasury would be small in comparison with the pounds 5.3bn paid in mortgage interest tax relief this year. If implemented by June the curb on high mortgage interest pay-outs would save pounds 1.5m up until April and pounds 6m from April 1994 to April 1995.

Relatively few people would be affected - there are about 1,500 people claiming Income Support help with mortgage interest on sums above pounds 150,000, and 3,000 claiming Income Support on sums above pounds 125,000. In 1991, the Department of Social Security paid out almost pounds 1bn in Income Support to cover mortgage interest for 411,000 claimants, and the average weekly payment was slightly more than pounds 44.

In the Shelter survey, a representative panel of 100 backbench MPs was asked: 'Do you agree that mortgage interest tax relief should be phased out when conditions are appropriate, with the savings being spent on better targeted help for homeowners?' Across the parties, 55 per cent were in agreement. Among Conservatives, 41 per cent agreed, 38 per cent disagreed and 21 per cent had no view either way. Among Labour MPs, 69 per cent were in agreement.

The poll supports Shelter's campaign for a reform of the system to stem the flow of repossessions - 68,540 in 1992 - and assist the 350,000 mortgagees with arrears of six months or more.

Sheila McKechnie, Shelter's director, has called on Norman Lamont, Chancellor of the Exchequer, to take advantage of recent falls in interest rates to begin phasing out mortgage tax relief in the forthcoming Budget.

She said: 'The changing pattern of the housing market in recent years, coupled with the record mortgage arrears and repossessions, has highlighted the absurdity of the current mortgage tax relief policy.'

In a report published today, Missing the Target, Shelter recommends that the Government considers the merits of a mortgage benefit scheme to assist homeowners on low incomes, similar to the housing benefit scheme for low earners in rented accommodation.

The report also recommends that the Government should carry out a review of alternative systems to help homeowners meet housing costs, including means testing.

Mr Lilley has referred proposals for limiting mortgage interest payments to the Social Security Advisory Committee. He said: 'We want to focus support on those whose needs are greatest, not on those whose assets are greatest. Why should the taxpayer keep the former millionaire in his mansion?

'It is one thing to tide over ordinary mortgage payers hit by the double blow of redundancy and a weak housing market, and we have no intention of damaging the current recovery in the housing market,' he said. 'But the system was never intended to bail out the super-rich on mega-mortgages who made no provision against tough times.'