Using estimates of the current cost of irrecoverable VAT on charities, the group said a 20% increase in VAT could cost the sector up to an extra £100m a year.

A one percent increase in National Insurance, which some believe Brown may propose of the health service, could cost the sector £50m , said the CFDG estimating charity payroll is worth about £5bn.

The National Council for Voluntary Organisations estimated the current cost of irrecoverable VAT to charities to be £400m.

But Russell More, VAT advisor at Saffery Champness, said that figure is 'very conservative' and the NCVO estimates do not include the millions lost on expenditure.

'Our best estimation of the cost off irrecoverable VAT to charities may in fact be closer to £1bn per year,' he said.

The group is urging Brown not to raise VAT or National Insurance. It is believed the Chacellor will increase these taxes in order to pay for the government's re-vamp of the health service.