A big extension of the Department of the Environment's housing energy efficiency scheme is under consideration as a means of offsetting VAT costs to 'nearly poor' domestic fuel users. The current scheme is limited to those eligible for social security benefits such as income support.
The raising of the income threshold for insulation grants is the latest idea to circulate in Whitehall in the search for ways of limiting the political damage of the tax and ensuring that it survives probable rebel and Opposition amendments this winter.
The importance of the compensation issue was again underlined yesterday when David Trimble, Ulster Unionist MP for Upper Bann, warned on BBC television that the Government should not rely on the support of his party to see through the VAT policy.
Mr Trimble said: 'If there is an issue of confidence that could precipitate an election, we will support the Government, but that doesn't extend to individual issues.' He added: 'We have consistently voted in the House against any extension of VAT to domestic fuel, and I can't see any circumstances where we'd vote differently.'
Some ministers still expect the Chancellor to introduce VAT on fuel in a single stage in order to raise more revenue - but possibly limit the rise to a lower rate than the 17.5 per cent planned in Norman Lamont's March Budget. But John Biffen, a former Chief Secretary, said yesterday that the Chancellor should consider increasing income tax.
Another VAT compensation possibility - though an expensive one - would be further to raise the pounds 16,000 savings ceiling for married couples to qualify for housing and council tax benefit. Ministers have also been examining whether the income support savings threshold could be raised from pounds 8,000, though the Treasury has grave reservations about a further big increase in social security payments.
The issue of compensation is likely to be discussed at next Thursday's full Cabinet meeting which considers the recommendations of the Cabinet public spending committee.Reuse content