The government scrapped plans for a hugely unpopular planning gain supplement in its pre-Budget report and comprehensive spending review today.

Chancellor Alastair Darling said the government would legislate in the Planning Reform Bill to allow local authorities to apply new planning charges – or tariffs – to new developments, ‘alongside negotiated contributions for site-specific matters’.

Liz Peace, chief executive at the British Property Federation, said: ‘We know from the more than twenty existing local tariff schemes that they can be made to work…We hope that the property industry and government can move quickly to agree the detailed implementation of a local tariff-based system.”

The decision is a victory for the property industry which has resisted the tax which it said would discourage new development.

However, the government is ploughing ahead with its plans to remove rate relief on empty properties from next April and has not conceded to industry demands to increase the rate exemption periods.

Darling said: ‘To encourage better use of commercial premises I will restrict the relief available for empty industrial properties to six months, and for empty offices and retail to three months. There will be special exemptions for charities.’

Other key points in the report include:

o A £10bn funding package for social housing over the next three years.

o A confirmation of the funding package for Crossrail

o A rise in the transport budget to £14.5bn a year by 2010.

o A raised inheritance tax threshold of £600,000 for couples which will rise to £700,000 by 2010.

o The main rate of corporation tax will be cut by 2p in the pound to 28% by next year.