Rule change frees up millions to be spent on growing the Yorkshire economy

The move, revealed in the fine print of the Budget yesterday, represents a major victory for councillors in the region who have been lobbying Ministers on the issue in recent weeks.

Councils in South and West Yorkshire will form two Combined Authorities next month with ambitious plans to grow their local economies with plans including tackling long-standing transport problems and building new roads.

But an obscure piece of tax law meant the new bodies would have had to pay VAT on their investments, raising the prospect of millions of pounds going to the Treasury rather than projects that will grow the economy in Yorkshire.

The West Yorkshire Combined Authority is planning to 
spend £1bn on transport improvements.

Wakefield Council leader Peter Box, who will chair the authority, said: “I welcome today’s news that 20 per cent of the Combined Authority’s funding on economic development will not be diverted away from driving local economic growth and towards VAT.

“We have previously raised this issue with Government and so are pleased to see that a sensible solution has been reached.”

The Sheffield City Region has drawn up a list of possible transport projects costing more than £400m.

A spokesman said: “We are pleased to see that as part of today’s Budget statement the Government has corrected an administrative oversight and will in future allow VAT refunds for Combined Authorities.”

The Chancellor’s offer of a so-called “earnback” deal to Cambridge, a way of funding big projects, will also give heart to those in West Yorkshire who hope they could do a similar deal with the Treasury.