Boost for housebuilding to help first-time buyers

Darling will admit that Government has fallen behind target for new homes

Alistair Darling will include a £1bn plan to boost housebuilding in tomorrow's Budget as he admits that the Government is falling a long way short of its target of ensuring that 240,000 new homes are built each year.

The Chancellor will try to stave off a crisis over the supply of new homes, particularly for first-time buyers, which is being deepened by the recession. In the small print of his Budget statement, he will concede that the Government is behind schedule on its target of seeing 240,000 new homes a year built by 2016.

Also in jeopardy is Gordon Brown's goal of securing three million new homes by 2020 – one of the first pledges he made on becoming Prime Minister in 2007, when he raised the annual target by 40,000 a year.

Despite the recession Britain is still chronically short of housing, and government advisers have warned that demand will not meet supply unless there is a rapid increase in housebuilding. The number of new homes built rose to 210,000 in the 2008-09 financial year, but will decline sharply in the current year. Housebuilders predict a record low.

As a result the Chancellor will provide "gap funding" to allow mothballed housebuilding projects to go ahead on "ready to go" sites for which planning permission has been granted. They will include "shared equity" schemes, in which first-time buyers take a stake in a house or flat in partnership with a housing association.

Local authorities, who used to build hundreds of thousands of homes, will be allowed back into the market, and will be able to bid for government approval. The quickest and best value projects will be given the green light.

Mr Darling will extend the stamp duty holiday on properties costing less than £175,000, which was due to end in September, until the end of December.

He will announce a bonus for people with variable rate mortgages who lose their jobs. Interest paid by the Government will be calculated on a 6 per cent rate, even though the average rate has dropped to 4 per cent.

As he finalised his Budget package, Mr Darling came under fire from Labour, Tory and Liberal Democrat MPs. Thirty-two Labour backbenchers signed a Commons motion demanding help for up to 3.8 million low-paid people who are still worse off as a result of Mr Brown's decision to abolish the 10p bottom rate of income tax.

The Opposition seized on Treasury hints that it could take almost 10 years to plug the hole in the nation's finances, as the Chancellor prepares to announce that public borrowing could rise to £170bn.

George Osborne, the shadow Chancellor, said: "Promises to balance the budget in 10 years are laughable from a Labour government that can't get its fiscal forecasts right from one month to the next. What it really signals is that Alistair Darling will duck the difficult decision on public spending needed to deal with the Government's debt crisis – and will instead predictably leave those decisions to the next Conservative government."