Tax cut 'will drive up cost of rural homes'

Alistair Darling is under increasing pressure to act to prevent deep cuts in capital gains tax (CGT) sparking a second-home boom.

Campaigners and opposition MPs warned that property speculators could use the tax reduction to drive up the price of rural housing. They spoke out after Stuart Burgess, the Government's Rural Advocate, urged the Chancellor to scrap the reduction in CGT on second homes from 40 per cent to 18 per cent.

The Campaign for the Protection of Rural England (CPRE) warned the move could squeeze more people out of the housing market. Kate Gordon, a CPRE spokesman, said: "Property in rural areas should go to people in housing need. There is a large shortage of affordable housing at the moment. Reducing this tax will lead to a wave of speculation and it could fuel further price rises.

"The Chancellor needs to assess the implications of these changes and we are not sure he has thought this through properly."

Tim Farron, the Liberal Democrat spokesman on the countryside, said: "While taper relief was unfair and regressive, the new system still taxes income at a lower rate than capital. This will further encourage the wealthy to invest in second homes, which will badly affect many rural areas."

Mr Burgess said he was "disappointed" at the decision to reduce CGT and called for council tax on second homes to be channelled into a new fund to invest in local housing. He said: "In some rural areas the proportion of second homes is very high. This can significantly affect local housing affordability and the sustainability of communities."