Home owners face windfall tax to fund transport links

Hundreds of thousands of householders and businesses will pay a windfall tax if their properties increase in value because of new transport links, under plans being considered by ministers.

The initiative is part of an attempt by the Government to rescue its £33.5bn plan for the rail network, which has virtually run out of money.

Treasury officials have been considering the option and John Prescott, the Deputy Prime Minister, has considered an independent study into the tax, which has already been used in the US.

The system would be aimed initially at ensuring the future of projects in the South-east that have been thrown into doubt by a huge shortfall in funds.

The new tax could be used to finance the £5bn CrossRail scheme involving a tunnel linking Paddington in west London to Stratford in the East End, the £1bn upgrade to existing Thameslink services between Brighton and Bedford via London Bridge, and the East London line Tube extension.

The levy, calculated by a formula that takes into account normal inflation in property prices, could affect all the areas connected by the new links.

Ken Livingstone, the Mayor of London, and Bob Kiley, his transport commissioner, support this new "rates" system. It was used to help to finance improvements in commuter services in New York, where Mr Kiley was responsible for the Subway.

The proposal is for the additional payment to be levied and collected by local authorities as part of the council tax system. Initial valuations of property would be compared with prices after a transport project became public.

Those with homes and businesses close to stations on the £3.5bn Jubilee line extension saw the value of their properties rise by £100 per sq ft. One estimate found the value of land along the new Tube route, completed in 1999, increased by nearly four times the total cost of building the project.

The tax would probably not be imposed retrospectively, so that, for instance, property prices in Kent that have benefited from the Channel Tunnel rail link would not be affected.

Mr Prescott, who has commissioned the consultant Atis Real Weatheralls to assess the system, believes the levy could be made to work and that it would form a way round the spending curbs imposed by Gordon Brown, the Chancellor.

Critics have pointed out that while property owners might benefit from new transport routes, they also have to endure the disruption their construction might entail.

A spokesman for Transport for London 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."

Local authorities across Britain are considering new ways of funding transport developments. Recently, Leeds City Council proposed that any company building housing or industrial estates should be made to contribute to new links.

Both the Government and the Strategic Rail Authority will come under pressure tomorrow to approve the new rail projects. Mr Livingstone will point out that London's population is predicted to rise by some 700,000 people over the next 12 years.