Clarke under strong pressure to kick-start housing market

Restoring confidence in the housing market will be one of the main demands from Conservative supporters at the Tory Party annual conference in Blackpool this year.

Many of the resolutions for the conference call for measures to kick- start the housing market. Kenneth Clarke will be in pre-Budget purdah, but the Conservative Party leadership will be keen to reassure their supporters that they are listening.

The Downing Street policy unit has been studying ways of helping first- time buyers in two ways - by raising the tax allowance from 15 per cent to 25 per cent, and raising the limit of the mortgage covered by the tax relief from pounds 30,000 to pounds 35,000. That could save some first-time home buyers an estimated pounds 600 a year in tax.

Norman Blackwell, the head of the policy unit, has been sifting through the options for helping home buyers in meetings with experts from the housing industry, including lenders and construction company chiefs.

The conclusion he came to was that there were no easy solutions, but something had to be done. Cutting mortgage tax relief was regarded by Tory MPs as part of the "target bombing" which the Government has been conducting on natural Tory supporters since winning the 1992 election.

Restoring the value of mortgage tax relief would at least show that the bombing has stopped. But Tory MPs and the policy unit are worried that the malaise in the housing market goes much further. It goes to the heart of Tory philosophy.

The commitment, made by Anthony Eden in 1946, was intended to set the Conservatives apart from socialists. It worked brilliantly for Baroness Thatcher in winning over council house dwellers with the "right to buy" their own council homes.

The hope of the 1980s turned to ashes for many when prices slumped, and redundancy left them unable to pay their mortgages. Twisting the knife in the wound, the Social Security Secretary, Peter Lilley, has committed the Government to cutting mortgage payment protection for the unemployed in October.

That move, say the mortgage lenders, panicked a nervy market, and choked hope of a revival. Last week's gloomy housing market figures confirmed the worst - the Bank of England does not expect house prices to rise before the end of the decade; around one million home owners could be caught in negative equity; the Halifax building society reported that house prices had fallen by 0.5 per cent in July; Tarmac announced it was selling its house building division; and a poll of Tory MPs showed many regarded action on the housing market as a priority.

All that was set against an optimistic OECD on the British economy, suggesting that the voters still lack the confidence to make the biggest commitment of their lives in buying their first house or borrowing more and trading up.

The Chancellor is under pressure to raise interest rates later this year to damp down inflation. So far he has resisted, but he may be forced to bow to pressure before the October conference. That would make calls for action irresistible.