Higher benefits pledged to calm anger over VAT: Downing Street orders 'clarification' after ministers' confusion on fuel bills

EXTRA BENEFIT was pledged yesterday for up to 10 million low-income households after ministerial muddle had threatened to whip up a full-scale Tory revolt over the imposition of value-added tax on domestic fuel and power bills in Tuesday's Budget.

The high-speed 'clarification' was ordered by Number 10 after two ministers had sown confusion about government plans - opening up the strong prospect of further backbench rebellion.

But John Smith, the Labour leader, protested in the Commons that the Government had made no commitment to compensate low-income groups in full for the new VAT on heating and lighting bills starting from April next year. He accused the Prime Minister of 'short-changing the poor'.

Opposition sources said last night that a complete benefit offset for the new tax could cost Whitehall at least pounds 800m a year when the full 17.5 per cent VAT began to bite in two years - more than a third of the pounds 2.3bn revenue expected in 1995-96.

Ministers have not decided the scale of the special VAT benefit, how much will come from the Treasury - or how much will be diverted from less sensitive parts of the social security budget.

But Peter Lilley, Secretary of State for Social Security, said 3 million pensioners and up to 7 million other people on income-related benefits - Income Support, housing benefit, council tax benefit and family credit - would get the extra cash help.

Donald Dewar, Labour social security spokesman, said: 'The whole thing has been cobbled together under pressure.'

Nevertheless, clarification of government intentions had been forced on ministers by an early morning BBC radio interview with Ann Widdecombe, a junior Social Security minister, who ruled out any special up-rating of benefits for the poorest.

Reinforcing the hard line that had been taken in the Commons on Wednesday by Michael Portillo, Chief Secretary to the Treasury, she said: 'The Chancellor made it clear that by the normal route, this rise in VAT will feed through into the Retail Price Index, and will therefore feed through into our calculations of how we uprate income-related benefit.'

That meant there would be no additional help for low-income families - in spite of the Chancellor's Budget promise that the VAT extension would be 'taken into account when the income-related benefits are uprated next year'.

Within hours of Miss Widdecombe's interview, Norman Lamont was reassuring Radio 2 listeners: 'It is a matter of concern to me that people should be worried about this, and we will look at the benefits that help the poorest pensioners - not just the pensioners, but other poor people - and we will see what help we can give. And we will give extra help.'

Asked by Jimmy Young whether the Chancellor meant full compensation for the extra tax for the poorest people, he said: 'Well, I think I have given a very strong hint . . . There will be extra help.'

After the issue had been discussed in Cabinet, Mr Lilley was dispatched for a remarkable series of radio and television interviews - designed to clear up the confusion sown by Mr Portillo and Miss Widdecombe.

He told BBC television that there was 'no confusion', and BBC radio that there was 'no real need for clarification'. He said: 'Extra help will be given to low-income pensioners and others on income-related benefits, and that extra help will be there next April, April 1994, before the rise in heating costs begins to feed through.'

John Major said during Commons question time that the help would be given over and above annual increases in pensions and other benefits that automatically take account of inflation. But he was less clear-cut in answer to Andrew Bowden, a Conservative campaigner for the pensioners, who asked whether additional help would be available for pensioners whose income put them just outside the scope of Income Support.

Mr Lilley had catered for them in earlier interviews, but Mr Major appeared to confuse that point, saying: 'It is right to concentrate extra help especially upon the poorest households. Other benefits will automatically increase with prices through the normal uprating mechanism.'

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