THE Treasury has been forced to deny Tory claims that Gordon Brown is planning a tax on housing that will hit middle-class homeowners.

On the eve of the chancellor’s budget this week, the Tories seized on the failure by ministers to deny that officials have been studying the possibility of imposing capital gains tax on housing if Labour is elected for a third term.

Such a tax would raise £10.5 billion a year — equivalent to independent estimates of the “black hole” in Brown’s budget sums — by taxing people at 40% of any profit on selling their homes. At present the tax applies only to second homes. When asked in the House of Commons on Thursday to give an assurance that capital gains tax would not be imposed on homes, Paul Boateng, the Treasury chief secretary, sidestepped the question twice.

“We have suspected for some time that the Treasury has been working on secret plans to introduce a bombshell tax on people’s homes,” said George Osborne, the Tory shadow chief secretary.

“Now we have the clearest indication yet that this is one their ploys for clobbering people if they win the election.”

There have been persistent rumours that the Treasury has been re-examining such a tax. “There is absolutely no question that this work is going on,” said one Westminster source. When the Treasury examined Britain’s housing market in the run-up to the June 2003 assessment of euro entry, it concluded that our housing was undertaxed in relation to Europe.

Last night the Treasury issued a firm denial. “No advice on imposing capital gains tax on main homes has been requested by Treasury ministers, none has been sent to them and this is categorically not on our agenda,” a spokesman said.

Another Brown aide said: “It would be barking mad to impose capital gains tax on main homes: it would destroy the housing market in Britain and no Treasury minister would ever consider such a measure.”

The row comes ahead of Brown’s ninth budget on Wednesday. The chancellor will contrast Labour’s plans to spend more on public services with what he claims will be £35 billion of Tory cuts. His main theme will be that under his stewardship the economy is being prepared to meet the challenge from China and India, the new economic giants.

He will also attempt to woo businesses with a pledge to cut red tape and bureaucracy by following the deregulation approach adopted by the Dutch government. The Treasury says Brown and Tony Blair have been working together on “a bold package of reforms” to cut red tape in the face of opposition from some departments.

Treasury sources say it will not be a typical pre-election “giveaway” budget, focusing instead on “equipping Britain for the long-term economic challenges we face”, adding that there would be no “irresponsible short-termism”.

Brown will insist that his golden rule will be met with a margin to spare. Even so, he is expected to announce some modest election “sweeteners”. These are expected to include a further freezing of the duty on petrol and diesel; an extra winter payment for poorer and older pensioners; and further help towards children and childcare.

Explore UK News

• Crime News

• Education News

• Health News

• Scotland News

Times Recommends

• Family cuts its waste to one binful a year
• Cameron can learn from Thatcher in 1979
• VAT is back ... and it's confusing