The Treasury last night furiously denied reports that Gordon Brown was considering a raid on the pockets of Middle England by imposing capital gains tax on house sale profits.
As opposition parties seized on the claims, Whitehall officials admitted such a step would be "crackers" in the run-up to a general election.
The row blew up after a newspaper quoted City tax experts insisting the move was on the agenda,as the Government attempts to a close a widening gap in public finances.
Patrick Cannon, the head of stamp duty at accountancy firmPricewaterhouseCoopers, told The Sunday Telegraph that it had discussed the issue with the Chancellor's officials.
"The Treasury has told us it is actively planning taxing the sale of first homes. We know he [Gordon Brown] is eyeing up the housing market and we know he is looking especially closely at taxing people who make speculative short-term investments in the housing market" he was quoted as saying.
However, a Treasury spokesman dismissed the report as "unadulterated garbage". He said: "PriceWaterhouseCoopers accountants do not speak for the Treasury on tax matters."
After hours of negotiations with the Treasury yesterday, a PwC statement "categorically denied" that discussions had taken place with the Treasury.
"We have a constructive working relationship with the Treasury and talk regularly to Treasury tax officials, but the idea we have had any confidential discussions with them on this issue is completely untrue."
Liberal Democrat treasury spokesman Vince Cable said imposing capital gains tax on home sales would add to the problem of soaring prices for first-time buyers. "Many middle-income households are already being hit by inheritance tax on housing. Capital gains tax would present further problemsfor middle England," he said.
Michael Howard, the shadow Chancellor, said home-owners would be alarmed to hear the Treasury was contemplating a 40% tax on home sales.
"Whether or not this story proves to be accurate, it shows what a mess the public finances are in under Gordon Brown," he said.
Analysts believe the disparity between Britain's housing market and the rest of Europe is one of the main reasons for the Government's hesitation over membership of the single currency. To prepare the pound for entry, Mr Brown would need to find a way of taking the heat out of house prices.
Forecasts yesterday also suggested the Government could have to borrow £36 billion this fiscal year, £9 billion more than Mr Brown's prediction in April.Reuse content