Skye bridge: Another target

After the judgment, which the government has pledged to comply with fully, Mr Smith said: "We have always opposed the principle of charging VAT in this area and fought hard to keep all toll charges free of VAT."

"We are determined to protect motorists from the impact of this unwelcome ruling.

"I have asked Customs and Excise to hold urgent consultations with operators of those tolled bridges and roads affected to devise a scheme of government support to offset the cost of VAT. It will be fully funded."

The aim is to ensure businesses can reclaim the VAT so that private motorists will not have to pay more in tolls on privately run crossings.

Back payments

The government has interpreted the ruling as having no impact on publicly operated crossings such as the Tyne and Mersey Tunnels and the Tay, Tamar, Humber, Cleddau, Forth Road and Clifton suspension bridges.

The Luxembourg judges backed a European Commission case that toll charges should be subject to VAT - a share of which is passed to Brussels as a major contribution to the European Union budget.

The Treasury also faces back payments to Brussels for failing to levy the VAT, because part of all national VAT receipts must be passed to the EC as part of EU budget contributions.

Tax clawback

The payments can be claimed by the Commission as far back only as 1994, the Luxembourg judges ruled.

But, coupled with the government's understanding that only three toll crossings are affected, the clawback will be minimal.

"This is not a large amount of money, particularly compared with our overall contributions to Brussels," said one spokesman.

Ireland and France are also covered by Tuesday's ruling and the Commission is looking at bringing a similar court action against Portugal and Spain.