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Green Budget: Environment - Pollution and energy strategies get priorit y

The Chancellor announced an energy-saving move which will help thousands more poor households to keep warm while cutting pollution.

He also said that tomorrowJohn Prescott, the Deputy Prime Minister, would unveil proposals for a tax on water pollution. Firms would be charged according to how much damage their industrial emissions did to sea and river life.

Mr Brown cut VAT on energy saving measures under the Home Energy Efficiency Scheme from 17.5 per cent to 5 per cent. That, he said, would add an extra 40,000 low-income homes a year to the 400,000 per annum having loft and cavity wall insulation, draught-proofing, hot water-tank lagging and other fuel and power saving material installed. To qualify for full payments, occupants have to be on state benefits such as family credit or jobseeker's allowance. The maximum grant is pounds 315 but the average is pounds 170.

Environmental groups were disappointed that Mr Brown did not cut VAT on energy saving goods to 5 per cent for everyone - the same level as VAT on gas and electricity. It is a move they have long been campaigning for, on the grounds that it would boost fuel saving by thousands of households and make a large cut in Britain's emissions of climate-changing carbon dioxide gas. The Treasury maintains that such a cut may conflict with European law.

Charles Secrett, director of Friends of the Earth, asked: ''If they can cut VAT on fuel down to 5 per cent ... then why not on energy saving goods too?''

''What the Chancellor has done for low-income households is a step in the right direction, but we think it should apply to everyone.''

The energy efficiency scheme has insulated 2.2 million low-income homes around Britain. Eaga, the Newcastle-based company which runs the Government scheme, says each insulated home cuts the carbon dioxide emissions it is responsible for by one tonne a year. The scheme also keeps 4,000 people employed installing the insulation. Grants are also available for any householder aged over 60, but only for a quarter of the cost.

While the Government is pressing ahead with a water pollution tax there was no further mention of the idea of a tax on quarrying. Nor was there any talk of new transport taxes.