The Treasury has approved plans for a £20,000 “roof tax” on each new home in Milton Keynes.

Officials from the ODPM, the Treasury, English Partnerships and the Milton Keynes Partnership Committee, the body set up to spearhead development in the growth-area town, met last week to discuss the levy.

ODPM officials have indicated that the Treasury has resolved its difficulties over the investment requested by Milton Keynes. The Treasury had taken the view that it could contravene public spending rules.

Henry Cleary, the ODPM’s senior official in charge of sustainable communities, said the initiative had been cleared at senior level.

He said: “The overall approach has been approved. The exact timing of the finances has yet to be worked out but we are very pleased with what has been done.”

Treasury officials say they are happy with the principle of the levy, into which section 106 payments will be incorporated. But they added that the initial gap funding for facilities such as schools, hospitals and roads would have to come from the budgets of the ODPM and EP.

Under the proposed scheme, up to £60m a year will be required to pay for infrastructure until the revenue from the levy starts flowing. Supporters of the tariff believe it will be self-financing from then on. It is expected to raise £1.2bn from the homes in the Milton Keynes growth area.

Milton Keynes Forward, the consortium of housebuilders and land owners that has helped hammer out the roof tax with MKPC, will meet next week. Roger Humber, the group’s co-ordinator, said: “We are pretty optimistic that the Treasury is happy with the arrangements.”

RICS regeneration panel chair Nigel Smith said it was good news that the levy looked set to go ahead but expressed concern that it would be difficult for the ODPM to find the funds for the infrastructure investments.

We are pretty optimistic that the Treasury is happy with the arrangements over the ‘roof tax’

Roger Humber, Milton Keynes Forward

Meanwhile, the Treasury has accepted that VAT rules provide developers with a “perverse disincentive” to refurbishing buildings.

Jim Fitzpatrick, the undersecretary of state for planning, made the comment during a House of Commons debate on the Thames Gateway.

He confirmed that Treasury and ODPM officials were investigating ways to bring VAT rates on new builds and refurbished properties into line.

He said: “The Treasury accepts the adverse impact and perverse incentives arising from differential VAT but it is mindful of the impact on revenue of any change in the regime as suggested.”

The government is looking at ways to harmonise VAT rates as part of its response to the Barker review.

Fitzpatrick added that the ODPM and HM Revenue & Customs were evaluating the impact of the tax credit introduced in 2000 to encourage the clean up of contaminated land.