The announcement effectively blocked the companies involved in three test cases from reclaiming millions of pounds in wrongly paid VAT in what was widely perceived as a damage limitation exercise implemented by a Government which is becoming increasingly nervous about its stance.

This week, in an outspoken letter to Chancellor Kenneth Clarke, the Institute of Chartered Accountants of Scotland's taxation director Derek Allen said the Government's move was inequitable and possibly illegal. Allen said the institute had been bombarded with complaints from its members, many of whom were concerned that the move could damage the integrity of the tax system and further increase hostility towards it.

Allen, who said a six-year cap (also suggested by the English and Welsh institute) would be more acceptable, added that the Government's current stance - although supported by the High Court earlier this year - was wrong, and likely to be overturned if the case reached the European Court. An estimated £15 billion in VAT paid on company cars as far back as 1973 is at stake - a figure the Exchequer simply cannot afford to lose.