Clarke blows cool on homebuyers

Budget debate: Chancellor is pressed on MIRAS and utilities windfall tax
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The Independent Online
The Chancellor is resisting growing pressure for special help for first time home buyers in the Budget. Sources close to Kenneth Clarke have said he is ready to reject the demands for action on the ground that it would stimulate inflationary pressures in the economy.

The Chancellor will face a barrage of calls for an increase in mortgage interest relief at source (MIRAS), back to 25 per cent for first-time buyers, from Conservative associations at the party conference next month.

The Chancellor also damps down hopes of tax cuts in an interview today in the Daily Telegraph. But he does not rule out stealing Labour's clothes with a windfall profit tax on the privatised utilities.

Mr Clarke is known to have been irritated by the support shown by Sir Marcus Fox, the chairman of the 1922 Committee, for Labour's tax plans.

Sir Marcus's intervention raised speculation that the Prime Minister may be trying to pressure the Chancellor to implement such a tax in the next Budget. Downing Street sources deny the Prime Minister's involvement, insisting Sir Marcus had acted independently. The Chancellor has told friends he is "fed up" with others writing his Budget for him.

While the option of a windfall taxis being pressed on him by senior Conservative backbenchers, some Cabinet ministers are privately making it clear they regard it as unfair.

They are ready to remind the Chancellor that last December, he said Labour would be "penalising success, damaging prospects for investment and damaging electricity prices".

The Treasury fears a retrospective tax would undermine future privatisations.

But Tory support for a one-off levy drew criticism from Tim Melville- Ross, director general of the Institute of Directors, who said they were taking a purely political position not justified on economic grounds. A windfall tax would increase the overall burden of taxation, which the IoD believed should be reduced, he said.

The cash generated would be more efficiently used by the private sector, which would either channel the money into new investment or return it to shareholders.

He said Labour's idea of using the one-off pounds 3bn yield for a jobs and training package was "nonsense" because investment in training and education had to be continuous to be effective.

In a pre-Budget submission, the IoD urged the Chancellor to do nothing to jeopardise low inflation and said income tax and corporation tax rates should only be reduced when it was clear that a reduction was sustainable - "probably starting in financial year 1997-98".

But some Tory MPs believe it could prove popular, following the widespread criticism of the utilities chiefs' pay rises and would help finance tax cuts, particularly for the low-paid.

Labour switched the attack from water companies to the regional electricity companies yesterday, claiming privatisation had cost the taxpayer pounds 3bn.

The assertion, based on House of Commons figures, flies in the face of repeated ministerial claims that the sell-off benefited the taxpayer.

Brian Wilson, a Labour industry spokesman, said that while the figures for the electricity industry were particularly striking, the Tories were also "guilty of repeatedly misrepresenting the position" on gas, water and telecommunications.

Commons Library figures show the electricity industry in England and Wales made a net contribution to the public finances of pounds 5.998bn in the four years to 1990-91 when the regional electricity companies and the generators were then in public hands.But in the four years since privatisation the total tax yield from the industry has been pounds 3.103bn. [Both figures are at 1994-95 prices.]

Mr Wilson said the Treasury has had to tax every household by pounds 139 to make up for the shortfall in revenue. Frank Dobson, Labour's environment spokesman, meanwhile called on OFWAT to publish details of the money held by water companies to mount or resist giant takeover bids.