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Wednesday, 18 December, 2002, 10:57 GMT
Brown quizzed over VAT on homes
For Sale signs
First-time buyers are being priced out of the market
Chancellor Gordon Brown has refused to rule out the possibility of imposing VAT on property purchases.

This could mean property-purchasers having to pay thousands of pounds extra in tax.

There has been a very fast rise in house prices

Gordon Brown
Some economists have suggested that placing VAT on house purchases is one method which could dampen the booming property market.

Even a lower rate of 5% VAT, which is charged on alterations and conversion work, would push up the price of a 150,000 property by 7,500, or 10,000 on a 200,000 house.

During a grilling by the House of Commons Treasury select committee Mr Brown stressed that he was not complacent about the booming property market because interest rates remained low.


This meant the proportion of income spent on mortgages had dropped below the pre-1990s recession level.

But pressed about the possibility that the government could levy VAT on house purchasing to dampen the property market, Mr Brown said: "I don't get into speculation."

Asked if he was refusing to rule out the move, the chancellor said: "We will keep all of our election commitments, all the commitments we have made on taxation."

In Labour's 2001 general election manifesto, the party promised not to extend VAT to food, children's clothes, books, newspapers and public transport fares - but made no mention of excluding house purchases.

Gordon Brown
Brown: 'Keeping Labour commitments on taxation'
Coupling VAT on houses with stamp duty could mean buyers finding themselves paying 20,000 to the government for a 250,000 house.

At 17.5%, the highest rate charged on most goods and services, this could mean an extra 26,250 on a 150,000 house or 35,000 on a 200,000 property.

During the hearing Mr Brown was forced to defend his hold on the public finances after announcing in last month's pre-Budget report that he would have to borrow an extra 20bn over the next two years - much more than he had forecast.

'Explain the figures'

Committee members taunted Mr Brown that his reputation as the "Iron Chancellor" was in danger of turning into one of "Rusty Brown".

They dared the chancellor to explain how he would offset the cost of further borrowing if future forecasts were also off the mark.

Mr Brown forecast in last April's Budget that borrowing would be 11bn for 2002-03 and 13bn for 2003-04.

But in last month's pre-Budget report he was forced to increase the forecast to 20bn and 24bn for next year.

Figures show that inflation has been pushed through the Bank of England's 2.5% target, with rising house prices probably to blame.

Housing boom?

But the Halifax has predicted that house price inflation is set to slow dramatically next year.

Liberal Democrat committee member David Laws asked Mr Brown if he believed the market was going through a "boom".

The chancellor did not use the word "boom", saying "there has been a very fast rise in house prices".

"I look at what is happening to housing as part of what is happening to consumer spending as a whole," he said.

"What we are suggesting in our forecasts for next year is that consumer spending growth will moderate and as part of that the housing market will moderate as well."

Worries over the booming housing market had to be balanced by a combination of low inflation and the low cost of mortgages because of low interest rates.

'Never complacent'

But Mr Laws said there seemed to be a "substantial difference in tone" between Mr Brown and the Bank of England, which has warned about the housing market becoming overheated.

Mr Brown commented: "We expect and look forward to seeing house price growth moderate over the next period.

"I hope that both the Bank of England and I would balance the picture, which has been very high growth in house prices, particularly in London and the South East... I would balance that picture by looking at what is the burden of consumers."

Mr Brown insisted he was "never complacent", adding: "We will always be vigilant about these matters.

"When you have got fast-growing house prices, it is one issue that the Bank of England and the Treasury are right to take very seriously indeed."





See also:

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