Prescott drops discounts on right-to-buy houses

Council tenants in "property hotspots" in London and the South-east will have to pay more to buy their homes under right-to-buy reforms that were announced yesterday.

John Prescott, the Deputy Prime Minister, said 42 councils would be allowed to cut the maximum discounts on sales from £38,000 to £16,000, adding he was considering further restrictions on the policy. But the changes to the Thatcherite policy, introduced in 1980, sparked Tory complaints it would fuel house price inflation, rather than reduce it.

In a statement to the Commons, Mr Prescott said: "I am totally committed to the principle of right-to-buy. We are not abolishing the scheme, but modernising it. "In certain housing crisis areas, right-to-buy has an adverse effect on the supply of affordable housing, penalising those who desperately need somewhere to live."

The 42 areas affected include 30 of the 33 London local authorities, Watford, Reading, Oxford and Newbury. About 1.5 million local authority tenants have bought their homes under right-to-buy, which was widely credited as delivering large amounts of working-class votes for the Thatcher Government.

But the current Government believes the house price boom has left the scheme vulnerable to abuse, with research suggesting 5 per cent of recent council home sales in London were made by property companies. At the moment, tenants qualify for the scheme after two years and can qualify for discounts of up to 32 per cent on houses and 44 per cent on flats, capped at £38,000 in London and the South-east. They have to pay the discount back if they sell on the property within three years. Councils will be able to impose the lower limits from March 2003. The Government is also tightening restrictions on right-to-buy resale in rural areas to protect supply of affordable houses.

Mr Prescott has backed off for now from tackling property hotspots in the North-west and Yorkshire, such as Cheshire, Leeds and York, but the option remains open. The Government is also considering lengthening the qualifying period for the scheme to five years and requiring new homeowners not to move for five years.

David Davis, the shadow Deputy Prime Minister, said: "Confining the cuts in rebates to 'housing price hotspots' will not solve problems in those areas. Prescott is only making matters worse. This penalty of some £20,000 – Prescott's poll tax on the poor - kicks away the ladder of opportunity for many."

He also protested the Deputy Prime Minister had made his announcement through a Commons written statement.

Ben Jackson, director of external affairs for Shelter, the homeless charity, said: "This is an important step but we will continue to make the case for further measures to stop exploitation of the scheme."

Louis Armstrong, Chief Executive of the Royal Institute of Chartered Surveyors, said: "There is still a need to suspend the right-to-buy in areas where demand for an affordable home outweighs supply, in towns and the countryside."

The House Builders Federation said the number of affordable homes built last year had fallen to its lowest level since records began in 1949 and by almost a third since 1997. Early estimates showed 18,000 social housing units were built in 2002, compared with 28,000 in 1997 when Labour won power, 50,000 in 1984 when Margaret Thatcher was prime minister and the record of 257,000 in 1954.