FANCY A LITTLE bolthole in Devon? Or a pretty weekend cottage in the New Forest? If you can’t really afford it, don’t worry. Gordon Brown will stump up 40 per cent of the purchase price for you and throw in any rental income or capital gain you make from it free of tax.

Sounds too good to be true? It isn’t. From next April, the new self-invested pension plans (Sipps) will be allowed to contain residential property. That means you can buy a house or flat for up to £215,000 and, if you are a top-rate taxpayer, you will get 40 per cent tax relief on it. What is more, if you rent it out, you will pay no tax on the income. Nor will you pay any capital gains tax when you eventually sell it.

The only drawback is that you are supposed to pay the market rent when you use it yourself. But the rent will go straight into your pension pot, free of tax, so it is not much more than compulsory saving. And those of you with fewer scruples can probably rely on the Inland Revenue not having the resources to police the exact number of weekends you spend there.

It is weird enough that a Labour Chancellor is giving such a huge subsidy to the richest taxpayers at a time when ordinary people’s pensions are so inadequate. Datamonitor calculates that the bung to Times readers and our ilk will cost the Treasury more than £2 billion. That is more than the (disappointing) amount that less well-off people have put into the low-cost stakeholder pensions.

But what is even odder is that Gordon Brown should be seeking to boost the housing market just at a time when its excesses seemed to have been brought under control.

It has taken the Bank of England two years to bring some sense into Britain’s crazy property market. Yesterday the Nationwide Building Society reported house prices rising by only 2.6 per cent over the year, well below the 20 per cent growth seen a year ago, and the first time for nearly a decade that house prices have grown at a slower annual rate than wages.

This is exactly what the Bank wanted to achieve. A slowdown in house- price growth — ideally a soft landing rather than a crash — would stop us borrowing so much. It would also chasten our spending habits, which had been unrealistically buoyed by the unearned wealth swelling in our sitting rooms. What the economy needed was a rebalancing: away from consumer spending and asset price bubbles and towards investment and exports. That is precisely what has happened.

Next week, the Monetary Policy Committee meets to discuss what to do next with interest rates. All the City’s money is on a cut — the first since July 2003. At the last meeting, the committee split five to four against a reduction, but there have been economic data since then that ought to make at least one member change his or her mind.

Last week we heard that the economy had grown by only 0.4 per cent in the second quarter, bringing the annual rate down to 1.7 per cent, its lowest since 1993 when the UK was emerging from a deep recession. It must be time to give the economy a bit of a kickstart.

And yet. This Sipps decision threatens to pump helium back into the housing market. Hargreaves Landsdown, the independent financial adviser, estimates that it will boost demand for residential property by £8.5 billion, or 5 per cent, from next year. Its research shows that 37 per cent of Sipps investors are planning to put their pensions into property, 85 per cent of those in Britain. Three quarters of them are also planning to take up the option to borrow up to half of the value of the pension plan, thus boosting the amount of money they can pour into property.

As Tom McPhail, head of pensions research for Hargreaves Lansdown, told The Times: “It’s the golden combination of property investment and government tax breaks; people want it and they want it now.”

Did Mr Brown really not think this through? He is already worried about the affordability of homes for first-time buyers. This is particularly a problem in those rural hot spots that city-dwellers throng to at weekends. If a cottage in the New Forest was beyond the reach of a young couple who have grown in up Lyndhurst last year, it will be even more expensive next year, thanks to the Chancellor’s extravagant tax breaks.

What is more, these are bribes that disproportionately favour the already well-off. Basic-rate taxpayers will win a discount of 22 per cent on their properties — barely half the gain to those in the top-rate bracket. And investors have to have at least £75,000 in their Sipps fund to qualify for the borrowing allowance. That will exclude much of the population.

I have already been wondering whether I ought to try to take advantage of this fantastically lucrative deal. By April of next year Sipps will doubtless be as popular a topic of conversation around middle-class dinner tables as children’s schools and the latest exotic holiday destination. But that can’t have been Mr Brown’s aim when he dreamt up this wheeze.

For the scheme ought by rights to be anathema to him and his party. It will price first and second-time buyers out of the market. It will add fuel to another housing boom, which will put pressure on the Bank of England either to raise interest rates or to refrain from cutting them. And it will give the biggest subsidy to those taxpayers — and pension savers — who need it least.

What was the Chancellor on when he thought it up?

maryann.sieghart@thetimes.co.uk

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