Prime Minister Gordon Brown suspended a homebuyer tax and proposed spending 1 billion pounds ($1.8 billion) sooner than planned to help reverse Britain's worst housing slump in at least 18 years.
The money will be used to help people buy new homes and support those struggling to pay their mortgages. From tomorrow, residential properties worth less than 175,000 pounds will be exempt from stamp duty for a year under plans announced by Chancellor of the Exchequer Alistair Darling.
The measures are part of a package of relief aimed at preventing the economy from tipping into a recession and bolstering the popularity of the ruling Labour Party, which has lagged behind the Conservative Party in polls since October. The economic slowdown has sent the pound to a record low against the euro.
The rescue package will be funded by spending more quickly the 6.5 billion pounds earmarked for social-housing programs over the next three years so that more of it is used in the next 12 months.
The stamp duty move effectively raises the current threshold for paying the tax from 125,000 pounds. As a result, the share of housing transactions exempt from the levy will rise to a half from a third. The move will cost the Treasury 600 million pounds in foregone revenue over the 12 months.
Darling was quoted in the Guardian Aug. 30 as saying the U.K. is facing “arguably the worst'' economic conditions since World War II. That prompted Brown's spokesman, Michael Ellam, yesterday to deny a rift between the two men.
Interest-Free Loan
The program would offer help to thousands of first-time buyers earning less than 60,000 pounds a year for up to a third of the value of a newly built property. The interest-free loans, funded by the government and the property developer, will be available for up to five years.
The government will also give money to several thousand households at risk of falling behind with mortgage payments in return for an equity stake in the properties. Housing associations would be given the money to buy and then rent back properties to those struggling to make payments, or buy or rent a share of the property to help reduce payments payday loan.
The plans are part of a broader economic package that Brown will unveil by Sept. 8, when the Cabinet meets for the first time following the summer parliamentary recess.
Nationwide Building Society said last week that house prices declined 10.5 percent in August from a year earlier, the biggest drop since the final quarter of 1990.
Heading for Recession
The stamp duty equals 1 percent of the purchase price for houses costing between 125,000 pounds and 250,000 pounds. The fee rises to 3 percent for homes up to 500,000 pounds and to 4 percent above that level. The average U.K. house price was 178,364 pounds in July, according to the Land Registry, making the levy about 1,700 pounds.
Britain is heading for its first recession since the early 1990s after the economy stagnated in the second quarter. A surge in food and fuel costs ate into the wages of consumers as a worldwide credit crunch dried up mortgage financing.
The credit freeze has prompted lenders to raise interest rates and curtail lending, and there is little sign that the squeeze is easing. Lending between banks fell 68 percent in July from a year earlier after financial institutions hoarded cash, according to Bank of England data published yesterday.
The economic slump has reduced support for the ruling Labour Party to the lowest since it took office in 1997. The opposition Conservative Party, led by David Cameron, widened its lead to 22 percentage points in a YouGov Plc poll finished on Aug. 21, up from 8 points at the beginning of the year.
In a Populus poll published in the Times newspaper today, 39 percent said they thought Cameron and George Osborne, the Conservative spokesman on economic matters, are best able to deal with the U.K.'s economic difficulties, compared with 30 percent who put their trust in Brown and Darling.
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