Brickbats for Brown's stamp duty masterplan

GORDON Brown's hopes of generating a political recovery by announcing measures to kick-start the housing market were fading last night as he faced a welter of criticism from industry experts and at Westminster.

The Prime Minister had looked to regain the political initiative after dire opinion poll ratings and repeated rumblings about his job security by announcing a £1.6 billion package to help first-time buyers and people at risk of having their homes repossessed.

The centrepiece, unveiled by Alistair Darling, the Chancellor, was the decision to scrap stamp duty for a year on properties costing up to £175,000.

This effectively raises the starting threshold on which the purchase tax is paid by £50,000 – from £125,000 previously – and amounts to a discount of up to £1,750 per purchase.

Other moves, which will apply only in England, will involve local councils taking a share of mortgages at risk of default, more social housing and five-year interest-free 30 per cent loans for first-time buyers.

But the initiative began unravelling when it emerged that Mr Darling had not worked out how to plug the £600 million gap that would be left in his finances by the drop in stamp duty receipts. He said that an announcement would not be made until the pre-Budget report, expected in November – creating the impression of policies being made on the hoof.

This also amounted to the third major announcement on tax made outside the normal confines of the annual Budget speech or pre-Budget report.

In May, Mr Darling announced a £2.7 billion compensation package for those affected by scrapping of the 10p income tax band, while in July – only days before the Glasgow East by– election – he announced a 2p-per-litre fuel duty rise would not be imposed on 1 October.

George Osborne, the Tory shadow chancellor, said: "This is a short-term survival plan for the Prime Minister, not a long-term recovery plan for the economy.

"They've had months to prepare and on the day it's launched, they can't even tell us how much it costs, or where the money's coming from."

Stewart Hosie, an SNP MP, said: "The only reason this move has been announced is Labour's growing panic."

Even Mr Brown's own backbenchers questioned the effectiveness of the stamp duty holiday, with the lack of availability of mortgages and the need for a 10 per cent deposit of far greater concern to prospective buyers. Gordon Banks, the Labour MP for Ochil and South Perthshire, said: "What concerns me is it doesn't stimulate the mortgage markets. It doesn't improve the access to mortgages other than the shared ownership options."

However, other housing industry commentators were more positive. Shelter, the homelessness charity, said the efforts to prevent repossessions were vital, with up to 45,000 households at risk this year.

Homebuyers in Scotland were also set to benefit disproportionately as the average price of a home is below the new £175,000 threshold – freeing them from the need to pay stamp duty. Only buyers paying average prices in Aberdeenshire, East Lothian, East Renfrewshire, Edinburgh, and Perth and Kinross would not benefit.

The data also shows there were 104,794 house sales north of the Border in the year to the end of March 2008 of up to £175,000. Of these, 40,891 were above £125,000 and would have been exempted from stamp duty under the new rules. In England and Wales, of the 1,149,388 sales in the 12 months to June 2008, almost half of them – 569,747 – were under £175,000.

David Mundell, the Tories' shadow secretary of state for Scotland, said: "This is a step in the right direction but only a modest one.

"It will have no effect for the vast majority of Scottish families."

Richard Lambert, director-general of the CBI, said: "The changes to stamp duty may turn out to be largely symbolic."

And Michael Coogan, the director-general of the Council of Mortgage Lenders, said: "We estimate that around half of all housing transactions will still be caught by stamp duty."

The Scottish Government said that it was already acting on initiatives now being pursued at Westminster.

Ministers want to see a wide reform of stamp duty to prevent its different bands – the tax rises to 3 per cent of the purchase price at £250,000 – distorting the market.

Holyrood also underlined its £250 million pledge over three years for first-time buyers in a shared-equity scheme and a £25 million support fund for people facing repossession.

A Scottish Government spokeswoman said: "The First Minister recently announced up to £100 million of capital spending will be brought forward over this year and next to meet the demand for affordable housing across the country."

A five-point plan to reverse the downward spiral

THE main points of the government's package are:

• Stamp duty. Homes worth £175,000 or less will be exempt from stamp duty until 3 September, 2009.

• Mortgage Rescue Scheme. A £200 million mortgage rescue scheme aims to help 6,000 families, who face repossession to keep their homes.

• HomeBuy Direct. £300 million to be invested in a new shared equity scheme to help up to 10,000 first-time buyers purchase a new-build property.

• Affordable Housing Schemes. £400 million is being brought forward for social housing from existing government budgets.

There are hopes this will lead to 5,500 more homes being delivered during the coming 18 months.

• Income Support for Mortgage Interest. The Department for Work and Pensions is reforming Income Support for Mortgage Interest (SMI) to help people who have lost their income pay their mortgage after 13 weeks, rather than 39 weeks.