Councils are to be offered cash incentives for every new home they allow to be built under plans unveiled by the Government today.

The New Homes Bonus will see the Government match the council tax raised on each new house for the next six years. The move aims to ease housing shortages and boost house building. Housing Minister Grant Shapps said action was needed as home building was at its lowest level since the 1920s.

With homeowners living in an average Band D property paying £1,400 in council tax every year, that would mean an extra £840,000 for a council which gives the green light to 100 new homes each year during the bonus period – which they will be able to spend as they wish.

Almost 85,000 planned homes have been scrapped by councils nationwide since the coalition axed regional house-building targets.

There were 120,000 homes built last year and there are 4.5m people in England who are on council waiting lists.

Mr Shapps said the controversial house-building targets had failed to result in enough new homes being built. He said: “We will not tell communities how or where to build. But the New Homes Bonus will ensure that those communities that go for growth reap the benefits of development, not just the costs.

“With house building falling to its lowest level since 1924 under the previous government, action is needed now to build the homes the country needs,” he added.

Labour described the plans as a “con” and said the cost could run into billions, adding that there was no new money and the scheme would be funded from existing grants to local authorities.

Shadow housing minister John Healey said: “Not content with misleading the public about a ‘black hole’ in funding for housing, this Government is now set on conning councils with a home builders ‘bonus’. The cost will run into billions, met mainly – as Tory proposals indicated before the election – by existing grants to local councils.”

Responding to today’s announcement, The National Housing Federation said more needed to be done to persuade communities of the “crying need” for new homes to be built.

By London Reporter Sunita Patel