Social security advisers back compensation for VAT on fuel

THE TREASURY should spend pounds 720m to fully compensate up to 8 million old, sick, disabled people and poor families with children for the extra costs of paying Value Added Tax on fuel bills, government advisers have recommended, writes Rosie Waterhouse.

In a report to Peter Lilley, the Secretary of State for Social Security, the independent Social Security Advisory Committee estimates that poor people with an average fuel bill of pounds 500 a year will need an extra pounds 40 a year when VAT at 8 per cent is imposed from April 1994 and pounds 90 a year when it rises to 17.5 per cent from April 1995.

Sir Peter Barclay, the committee's chairman, said: 'Normal uprating of benefits will compensate them only partly and belatedly. It is essential that extra money should be added to a range of benefits for poorer people if significant hardship is to be avoided.'

The report says the cost to the Treasury would be an extra pounds 400m. At least pounds 320m will have to be paid out through uprating benefits as the VAT pushes up the retail price index. 'The additional cost of fully compensating 8 million people . . . represents only a modest proportion of the total revenue which the imposition of VAT on fuel may be expected to generate.'

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