The Labour government has turned down the demand of the recession-hit Indian restaurant industry to raise the threshold at which small companies pay VAT, spreading gloom among thousands of owners and employees.

Buffeted by steep fall in revenues, nearly 150 Indian restaurants that tickled palates across Britain have closed down since last Christmas and many more are likely to shut shop in the next six months.

Owners of Indian restaurants in the east Midlands town of Leicester, which has a large minority of Indian origin, started a campaign at the local and national levels to urge the government to come to their rescue in the same way it had supported failing banks.

But in a letter to the campaign organisers, treasury minister Angela Eagle said: "The government cannot change the UK VAT registration threshold without prior agreement with the European Union."

She added that the current UK threshold of 68,000 pounds was already the highest in Europe and that other businesses in the country were calling for it to be made lower, not higher.

Indian restaurant owners want the threshold to be raised to 95,000 pounds.