New property windfall tax planned

Homeowners whose properties rise in value when Tube or rail lines are built nearby could be clobbered with a windfall tax to help the Treasury pay the bill.

Ministers are examining the proposal to meet a shortfall in the Government's £33.5 billion plan to extend Britain's rail network. Three major London rail projects could be the first affected.

Deputy Prime Minister John Prescott has commissioned property consultant Atis Real Weatheralls to weigh up the benefits. Treasury officials are reported to be examining the idea, and Mayor Ken Livingstone is understood to be in favour.

The levy could be added to council tax bills, but the money would go straight to Whitehall to help pay for the rail schemes. Businesses whose properties increase in value would also face higher rates.

Backers of the proposal point out that the £3.5 billion Jubilee line extension through Southwark and Bermondsey to Canary Wharf and Stratford brought a major boost to local property markets. Land along the route was estimated to have risen in value by four times the cost of building the new track.

Any fresh source of funding could boost the chances of the Government giving the go-ahead for the long-delayed £5 billion Crossrail line from Paddington to Stratford, through the centre of London.

Other projects which could be affected include the extension of the East London line, north through Hackney and south to Crystal Palace and Croydon, and the £1 billion upgrading of existing Thameslink services from Bedford to Brighton via London Bridge. Hundreds of thousands of householders could end up contributing to the costs.

The charges will not be imposed retrospectively, so property owners along the Jubilee line route or the Channel Tunnel rail-link line in Kent will not have to pay.

A similar mechanism was used to help fund improvements to commuter services in New York, where London's transport commissioner Bob Kiley used to run the subway.

His organisation, Transport for London, gave the idea a cautious welcome. A spokesman said: "Controversy will always be generated when any new tax is suggested and there are complications to be worked out.

"It seems reasonable that where people benefit from new developments they should contribute towards those projects."

Council tax is already based on property values, so developments which raise
the value of a home eventually mean higher bills. The new proposal would accelerate the revaluation process, usually carried out only once every 10 years, and redirect the extra payments from the town hall to Whitehall.

The new levy, if introduced, could be the third major new tax on Londoners to be backed by the Mayor. His congestion charge for motorists in central London takes effect next month, and last week he backed plans for council tax payers to help meet the cost of bringing the Olympic Games to London.

A funding shortfall has cast severe doubt over whether the Thameslink upgrade or Crossrail will go ahead. Richard Bowker, chairman of the Strategic Rail Authority, warned last month that his £33.5 billion budget from the public purse, intended to pay for rail improvements over 10 years, could all be used up on maintenance, current projects and subsidies to train operators.

The proposal could prove deeply unpopular with voters, and ministers may balk at the prospect of going thorough with it. The planned new lines run through deprived neighbourhoods in east and south-east London where many residents would struggle to meet any demand for extra council tax.

To operate the scheme, valuers would have to assess how much a property was worth before and after the announcement of a nearby transport improvement, and calculate the difference, taking into account normal property price inflation.