The Chancellor, who has been in talks with Mr Baldry about the change, said he
had committed in the Budget that churches would not be hit by the VAT
change.

Mr Osborne also had discussions with Bishop of London the Rt Rev Richard
Chartres, representing the Church of England.

He told the Commons: “I can confirm today that we have reached an
agreement with the Church.

“The Government will provide £30 million of grant to the Listed Places
of Worship scheme.

“That will be 100 per cent compensation, exactly as we promised in the
Budget, for the additional cost borne by churches for alterations and should
also go a long way to helping the situation with repairs and maintenance
where in recent years they have not been able to get 100% compensation for
those repairs and maintenance.

“We think it will deliver 100% coverage for repairs and maintenance as
well.”

Labour MP Frank Field, chairman of the planning authority for English
cathedrals, welcomed the move.

Mr Field told Mr Osborne: “Can I congratulate you on the way you have dug
yourself out of a hole into which you placed yourself.”

The Chancellor said: “We were very clear in the Budget that we wanted to
fully compensate churches for the impact of this change and I’m glad that we
have done so.”

The Church of England welcomed the agreement with the Government over the
future funding of alterations and repairs to its 12,500 listed buildings.

The Listed Places of Worship Grant Scheme (LPWGS) will enable the equivalent
to the VAT bill to be paid out on all alterations and repairs to listed
church buildings.

Dr Chartres said the Chancellor “made it very clear that he was moving to
ease the impact on the churches in recognition of the massive contribution
made by congregations up and down the land to the life of their communities”.

Anne Sloman, chairwoman of the Church Buildings Council, said: “The fact
that the Treasury offer went from £5 million to £30 million is a recognition
of the tremendous value for money to the nation as a whole that our
buildings represent.

“We are grateful to parishes up and down the land who have lobbied so
hard since the Budget to bring this point home to the Government, and even
more grateful for the massive contribution volunteers make by their efforts,
week in and week out, to keep our beautiful churches in good repair for
worship and adapted to serve the community in so many creative ways.”

Shadow culture secretary Harriet Harman said: “This Government’s U-turn
is a victory for the campaign by churches and local communities against a
wrong-headed proposal in the shambolic Budget.

“But it won’t help the National Trust, all the museums, galleries,
theatres, libraries and community centres that are in listed buildings, and
which are important for heritage, tourism and local communities.

“They will still be clobbered by the 20 per cent tax increase, so George
Osborne must think again on this.

“We also need to see a U-turn on other measures in the botched and
unfair Budget, like the tax rise on millions of pensioners and the tax cut
for millionaires.

“And with our economy pushed into a recession made in Downing Street, we
urgently need the Government to rethink its failed economic policies.”

Claire Walker, chief executive of the National Churches Trust, welcomed the
announcement but said the funding was only guaranteed for the duration of
the Parliament.

She said: “Many listed churches apply to us for funding to extend the use
of their buildings for the benefit of their congregations and to enable
their use by the wider local community.

“Often this involves practical solutions such as the provision of
toilets and kitchens.

“The planned imposition of VAT on such projects would have increased
their cost by 20%.

“The Government’s £30 million compensation package means that listed
places of worship will now find it easier to carry on with projects which
enable them to open up more fully to the community, a process which both
serves local people and helps sustain the life of listed church buildings.

“We will, however, need to see how effective the Government’s
compensation package will be in practice as funding allocated is cash
limited. We will also press that the compensation package remains in place
for the long term as the scheme will be guaranteed only for the duration of
this Parliament.”