Budget could offer help to first-time buyers

Budget could offer help to first-time buyers

Next month's budget could include tax cuts aimed at helping first-time buyers and the growing number of home owners hit by inheritance tax.

Senior Labour officials aware of the political impact of rising property prices are looking at the proposals in an attempt to pre-empt moves by the Conservative party to make tax an election issue.

Labour fears that its election campaign could be diverted by a battle with the Tories over taxation. Party campaigners are worried that Conservative plans to reduce taxation by £4bn - outlined by the shadow chancellor Oliver Letwin last month - could win over middle Britain voters.

Despite a widespread assumption at Westminster that the tight state of the public finances means the chancellor has little scope for a pre-election giveaway, Labour campaign sources say "the numbers" for the budget are better than predicted outside government. They believe that the scope for tax cuts, or at least some revenue-neutral redistribution of spending, is substantial.

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The Tories have held back their last big political weapon until after the budget, when they plan to announce how they would distribute their planned tax cuts.

Stamp duty, council tax, inheritance tax, capital gains tax, and income tax have all been canvassed as possible areas by a Conservative team chaired by Stephen Dorrell, former health secretary. The Tories claim the average first-time buyer in 1997 paid no stamp duty, but now faces a charge of around £1,170. Stamp duty raised £3.8bn for the exchequer last year, up from £675m in 1996-97.

Any cuts proposed by Labour would be limited but politically significant. Campaign sources point out that a cut in stamp duty for first-time buyers would only cost £400m if it was restricted to properties with a value of £250,000 or less.

Some ministers are also pressing for replacement of the current flat rate of inheritance tax with a banded system like income tax. A proposal canvassed by the Institute of Public Policy Research and gathering support in government is for a large, tax-free slice of transferable wealth, as now, then slices taxed at 22%, 40%, and, for the very largest estates, 50%. Around 87% of estates would pay less, but the new system would still raise an extra £147m.

Guardian Unlimited © Guardian Newspapers Limited 2005