Chief Political Correspondent
An increase in mortgage interest tax relief, possibly limited to first- time home buyers, is on the Chancellor's agenda for the Budget to get the housing market out of the doldrums and lift Tory morale.
Reversing cuts in Miras (mortgage interest relief at source) introduced by previous Tory chancellors would be a massive policy U-turn by Kenneth Clarke. It would, however, show that the Government is listening to Conservative MPs who are desperate for a revival of the housing market to rekindle the "feel good" factor among voters.
Restoring Miras to 25 per cent of earnings from 15 per cent would be expensive, costing around pounds 900m. The bill could be reduced if it was limited to first-time buyers.
Mr Clarke will resist calls for stamp duty to be abolished and has rejected one by one other short-term measures to lift the housing market, including tax relief for those in negative equity.
The Prime Minister, John Major, and the Downing Street policy unit are backing calls from within the party for action on the housing market. The Chancellor is said by Whitehall insiders to be bowing to pressure and considering the value of Miras.
"The Chancellor reckons the stamp duty holiday introduced by Norman Lamont was less than useless. He is not going to go down that avenue," said one government source. "He is looking at Miras."
There have been growing cries of pain from Tory supporters at the collapse in house prices, which have led to increasing numbers of people seeing the value of their houses fall below the value of their mortgages.
Mr Clarke has always insisted that lower interest rates would be the best way to revive the market. But rates may have to be raised before the end of the year.
Baroness Thatcher unsuccessfully argued with Lord Lawson, her chancellor in the mid-1980s, for mortgage interest relief to be raised to a mortgage limit of pounds 35,000. Successive Chancellors have left it at pounds 30,000. It was cut to 20 per cent in March 1993 by Norman Lamont and reduced last year by Mr Clarke to 15 per cent.
John Redwood, the right-wing challenger for the Tory leadership, has made the restoration of Miras one of his main campaign issues, which he will take to the Conservative Party conference in October.
The Chancellor was put under renewed pressure for action on the housing market after the Bank of England reported recently that house prices were unlikely to pick up until the end of the century and Tarmac, the construction conglomerate, announced it was selling its house building division.
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