Tory unease rising over VAT on fuel

KENNETH CLARKE, the Chancellor of the Exchequer, came under fresh and mounting pressure yesterday to sanction an expanded compensation package for VAT on domestic fuel in his November Budget, writes Donald Macintyre.

Tory unease over the tax broke into the open yesterday when six Conservative backbenchers signed a Commons motion calling on the Government to increase the old age pension to compensate the elderly for the new tax.

The sponsors of the all-party Early Day Motion include Andrew Bowden, MP for Brighton Kemptown, and Peter Fry, MP for Wellingborough, who are seeking to extend protection beyond those already receiving income support.

The move came as John Smith, Leader of the Opposition, told a Westminster rally of pensioners that Labour 'will do all it can to force the Tories to back down' on the tax. He said: 'We did it with the poll tax and it can be done again,' adding 'if old people cut down on their fuel bills too much, the consequences could be fatal'. The Early Day Motion is the clearest sign yet that the Government could face a parliamentary rebellion on the tax during the passage of the Finance Bill this winter, unless it extends compensation to 'nearly poor' pensioners, who fail to qualify because they have savings. William Powell, the Conservative MP for Corby, claimed yesterday there were now enough rebels to defeat the Government on the issue.

Yesterday's motion said that 'linking compensation for higher fuel bills to income-related benefits will not help pensioners with incomes just above the qualifying limit, nor those who do not claim'.

VAT compensation is a key issue in the current public spending round which Michael Howard, the Home Secretary, said yesterday it was right that the round was 'the toughest for many years'. Mr Howard stressed that if taxes went up it would only be because the Chancellor 'can see no other way of bringing down the deficit'.

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