A FRESH row broke out at Westminster yesterday over the Government's

decision to impose VAT on domestic fuel bills after it was confirmed

that the tax will be applied to standing charges for gas and

electricity.

The issue was raised at Question Time in the Commons and led to

immediate condemnation by spokesmen for Opposition parties that it would

hit pensioners and others on low incomes.

Chancellor Norman Lamont announced on Budget Day that VAT would be

extended to domestic fuel at a level of 8% from April next year, rising

to 17.5% in April 1995.

It had been widely assumed that this would apply only to the actual

amount of gas or electricity used by consumers, but yesterday Ministers

made clear that VAT would be applied to standing charges -- levied

regardless of how much power customers use.

In the Commons, Shadow Chancellor Gordon Brown demanded of Mr Lamont:

''Are you now proposing on top of VAT on the use of fuel that you will

impose VAT on standing charges for gas and electricity as well?''

The Chancellor replied: ''I know you had a briefing and a lunch with

British Gas yesterday, as a result of which you were informed that VAT

did apply to standing charges. I am not going to take any lectures on

this point from the Labour Party which, when it was in office, increased

electricity prices by some 168%, an average of nearly 20.7% a year.''

The official line from Government spokesmen was that it had always

been intended to put VAT on standing charges and this had been made

plain to those asking for such details since the Budget.

It was argued that if VAT was not imposed on standing charges, the

privatised electricity companies -- who have to hand over their VAT

payments to the Government -- might be inclined to demand more payments

through standing charges than from the actual use of power. In other

words, they would use it as a tax device and a means of increasing their

profits.

However, Opposition MPs were more concerned about the impact on

pensioners and those on low incomes.

Mr Brown pledged that Labour would step up its campaign against the

imposition of VAT on fuel, and added: ''There will be anger throughout

the country, especially among pensioners, that every election promise

has been broken, including now the imposition of VAT on standing charges

paid by pensioners and others on low incomes for gas and electricity.

''Today no Minister has been able to give us an explanation of the

impact this will have on people or provide an environmental

justification for it.''

The SNP's Environment spokesman, Angus East MP Andrew Welsh, said:

''This is profoundly unfair. These charges will hit the poorest hardest,

and show that the Chancellor simply does not understand how people --

especially pensioners and the poorest -- struggle to make ends meet. It

is a disgrace.''

During the Commons exchanges, Labour MP George Foulkes (Carrick,

Cumnock and Doon Valley) said it was unfair to charge VAT on domestic

fuel as the top 10% of earners spent a much lower percentage of their

income on this than the bottom 10%.

He challenged Treasury Minister Anthony Nelson: ''A couple on Income

Support with two children are going to have to pay #2 a week extra on

fuel. Will you end their agony, suspense and misery, by giving an

assurance that they will be compensated in full for that amount?''

Mr Nelson replied that in the Budget as a whole, the better off would

be paying more, and substantial help would be made available to assist

with the cost of VAT people would have to bear.

Shadow Chief Secretary to the Treasury Harriet Harman called on Mr

Nelson to clarify the situation on VAT. There were angry cries from the

Opposition benches when the Minister replied: ''The Chancellor has made

the position perfectly clear on this matter and I have nothing further

to add.''

During the exchanges, Ms Harman accused the Chancellor of being

''deliberately confusing'' on the issue.

Later, Shadow Social Security Secretary Donald Dewar said: ''Standing

charges often make up a large part of the bills of low income

households.

''To put VAT on them will put more pressure on already strained family

budgets, and it blows out of the water the theory that this is a green

measure.''

He added: ''It is purely and simply about raising money, and it will

hit pensioners and others with low incomes hardest.''

Mr Eddie Loyden, Labour MP for Garston, said: ''It is an absolute

scandal and there has been no justification whatever for passing the

burden of taxation on to the poorest and most vulnerable in our

society.''

Mr Dennis Skinner (Bolsover -- Lab.) said: ''The standing charges

should be abolished, not increased.''