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Shadow treasury chief secretary Liam Byrne's amendment to Finance Bill would have kept VAT at 17.5% for non-business expenditure

An amendment to the Finance Bill that would have protected charities from much of the increase in the VAT rate to 20 per cent was defeated in the House of Commons last night.

MPs voted by 321 to 243 against an amendment tabled by Liam Byrne, the shadow chief secretary to the Treasury. If passed, charities would have continued to pay VAT at 17.5 per cent on non-business expenditure. Byrne estimated that his amendment would have saved the sector about £70m a year.

Byrne said the VAT rise had been introduced quickly and that the government had not recognised the negative effect it would have on charities.

"It is perfectly plausible to suggest that the Treasury did not foresee it," he said. "And there is something we can all do this evening to ensure that charities are protected from unintended consequences."

Conservative MP David Gauke, the exchequer secretary to the Treasury, said it was "regrettable that charities, among other groups, will have to pay more in tax".