A trust to compensate the victims was established by Distillers, which is now Diageo plc, but it was discovered in 1974 that payments from it were subject to tax because of the way that it had been set up. Until 1997 the Treasury repaid the tax to the 455 victims, who each receive about £11,000 a year.

Mr Brown announced in July, however, that he would not offset tax on a new £32.5 million covenant to the trust, as the last government payment of £7 million in 1996 was declared at the time to be a final concession.

Mr Howard writes to the Chancellor today: “I cannot imagine what justification there is to disregard a long-standing convention that helps some of the most vulnerable people in our society. You are the first Chancellor to turn your back on thalidomide victims in this cruel way.”

He called on Mr Brown to attend a debate in the Commons today on the taxation of the Thalidomide Trust. About 80 MPs from all parties have signed an early day motion tabled last month by the Conservative MP Jonathan Djanogly, calling for Mr Brown to return the tax raised from the trust.

Freddie Astbury, chairman of the survivors’ group Thalidomide UK, said: “The Government has failed to recognise there are serious concerns that the health of thalidomide people is rapidly deteriorating.”

Glen Harrison, a thalidomide victim, said that nowhere else in the world did victims of the drug pay tax on compensation. “We are very surprised that a Labour Government has done this,” he said.

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