Labour have unveiled a policy that would force landowners to sell for knockdown prices, it was revealed yesterday.

Under existing laws, the amount of compensation for land compulsorily purchased by the State is calculated by its value after development.

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It means a hectare of agricultural land – which would be worth around £20,000 undeveloped – would sell for around £2million.

But Labour would set up a quango, the English Sovereign Land Trust, and give it powers to buy sites at rock-bottom prices which excluded the up-rating after planning consent is granted.

Last night there were warnings that such a move would damage pension funds that invest heavily in land.

Property experts Savills also warned there would be legal challenges to the move as it could breach property rights.

Labour’s housing spokesman John Healey said: ‘The principle behind this idea is simple: the additional value of land publicly created by the granting of planning permission should flow to the local community rather than just as windfall profit to big developers, landowners and land agents.’'

Responding to the Labour Party proposal, CLA Director of Policy and Advice Christopher Price said: “The best way to tackle the housing crisis is to remove the massive barriers that still stand in the way of private landowners who want to invest in providing, usually small, housing schemes in rural areas. These include uncertainties of navigating the chaotic and under-resourced planning system and a penal tax system that too often disincentives positive investment.

“Compulsory purchase of land should only ever be a last resort and in practice it is far more likely to be small family farms that suffer, not the big players who have far more means to defend themselves.    

“The principle of capturing land value uplifts to fund public benefits from infrastructure investment to environmental benefits or social housing is well understood. The current system has the means to do this in a number of ways, we would not support yet another incremental change that would merely make things even more complex and adversarial.

“We are open to a more fundamental look at these issues, but it must start from the point of view of working with landowners not seeking to forcibly remove their assets at artificial low prices.”