Geoffrey Cox, MP for West Devon and Torridge, has condemned the Government for denying local pubs in the area business rate cuts to which they are entitled because of losses of income resulting from the smoking ban.

He has urged local publicans to apply for the reductions.

The MP, who has strongly criticised Prime Minister Gordon Brown's increases in alcohol taxes, said that pub landlords could be paying thousands of pounds over the odds in tax, but are being kept in the dark by Government tax inspectors who want to avoid paying out tax refunds.

The British Beer and Pub Association has estimated that pubs are now closing at the rate of 36 a week nationally because of the smoking ban, fragile consumer confidence, ruthless competition from supermarkets and – not least – higher beer taxes imposed by Gordon Brown.

The MP has received many letters from concerned publicans, independent brewers and pub-goers who are worried that these recent tax rises will spell the end for the traditional rural pub.

Parliamentary Questions have brought to light unpublished internal guidance by the Valuation Office Agency (an arm of HM Revenue and Customs) on how local firms should be charged business rates. It admits that they have been giving out the wrong advice to firms on the effect of the smoking ban.

Until recently, said Mr Cox, tax inspectors refused to give any business rate reduction for the loss of custom due to the ban.

He said: 'Their latest guidance now admits – thanks to advice from lawyers – that the smoking ban represents a "material change.' Pubs can use this to make a claim for a lower rateable value and so cut their yearly rates bill. For example, a £5,000 reduction in rateable value would save publicans £2,300 a year in tax.

'Pubs can only apply for this tax cut if they make an appeal and fill out complex paperwork. The Government has made no announcement about potential refunds to local pubs across England and Wales. Business rates are the third biggest cost to local firms after rent and staff costs.'

Geoffrey Cox added: 'Local pubs in Torridge and West Devon are a vital part of our social fabric and community life. While big pub chains may be making money out of Labour's new drinking laws, small everyday pubs in our villages and market towns are suffering from the combined onslaught of higher beer taxes, a weakening economy, supermarkets selling alcohol below cost price and the smoking ban.

'Whatever people's views on the smoking ban, it has had a major impact on many pubs. The Government's own tax inspectors have now admitted that pubs may be eligible for refunds on their business rates, but pub owners are being kept in the dark about this U-turn.

'Ministers are only interested in changing the tax system when it raises extra money for Gordon Brown's coffers. Thanks to Whitehall secrecy and this stealth pub tax, local firms are going to the wall and everyday pub-goers are being hit in the wallet,' he said.