VICTIMS of the thalidomide drug are to receive up to (pounds) 3120 more a year after a U-turn by the government over tax rules.

Payments to victims of the Thalidomide Trust, set up by Distillers, the makers of the drug, will now be tax free.

Given to pregnant mothers in the late 1950s and early 1960s to treat morning sickness and nausea, thalidomide led to thousands of babies being born with stunted limbs and other birth defects.

The thalidomide scandal led to years of litigation as victims and their families attempted to win compensation. There were boycotts of Guinness, which bought Distillers, the drug's manufacturers, in 1986, and some people even went on hunger strike to highlight the financial plight of victims.

About 480 people in Britain were affected, with around 60 of those from Scotland. Yesterday's announcement means the 456 living survivors will be up to (pounds) 60 a week better off.

Heather Bird, 42, from Wishaw, who spent 14 days on hunger strike along with two other campaigners in 1994, said she was delighted that the government had changed its position. ''The trust fought tooth and nail for this so it's a great victory. Perhaps now I will be able to afford a live-in companion carer. I even had to remortgage my house a few years back to be able to buy a wheelchair.''

Dr Martin Johnson, the trust director, said: ''This change will make a big difference to many of our beneficiaries, particularly those who struggle to get by on the relatively small sums of money we are able to provide.''

Trust payments had been counted as income which meant victims had to pay more tax. The payments will now be reclassified so they become tax exempt, although this will not be backdated.

Another campaigner whose mother took the drug, Guy Tweedy, said: ''After meeting 125 MPs, and writing over 3500 letters to Lords, MPs and beneficiaries, we welcome this tax exemption, which is 30 years overdue.''

The trust has campaigned for the rule change since it was set up in 1973 by a donation from Distillers. In 2000, campaigners asked the general public in Scotland to boycott products made by Diageo, the successor company to Distillers, in an attempt to improve the financial position of the drug's victims.

Freddie Astbury, president of pressure group Thalidomide UK, said they were ''delighted'' with the decision. However, he added: ''It's a shame that thalidomide victims have had to pay unnecessary tax for 29 years based at 34%.

''We have been taxed at the same amount as a professional footballer, which is ridiculous when you consider the level of our disabilities.

''Many people forget that the drug was given a product licence by the government in 1958 without thalidomide being adequately tested. No government has ever offered compensation to the victims: instead they taxed us on our settlements.''

The campaign was supported by a number of high-profile personalities, including Robbie Fowler, the football player, Prince Naseem, the boxer, and the pop star Ronan Keating.

Announcing the rule change, Dawn Primarolo, the paymaster general, said: ''Today's announcement demonstrates our continued commitment to helping the most vulnerable in society, and acting where we can to ensure a fair tax system.''

The trust thanked the chancellor, Gordon Brown, John Major, the former Tory prime minister, and Jonathan Djanogly, the MP for Huntingdon, for their help in the campaign to change the tax rules.

It will be worth (pounds) 1m per year in lower tax and increased tax credits for thalidomide victims, the Treasury said. The new legislation will take effect from August 5 this year.

Since 1974, the Thalidomide Trust has been subject to the same rules that govern payments from all discretionary trusts. Up until now some payments from the trust have counted towards the victims' taxable income.

The trust will now change the way it makes its payments so that they can be classified as periodical and fall within the scope of legislation governing structured settlements. This allows the Treasury to make use of a hitherto unused provision of the Income and Corporation Taxes Act 1988 to designate the periodical payments to thalidomide victims as exempt from income tax.

Given to pregnant mothers in the late 1950s and early 1960s, thalidomide led to thousands of babies being born with stunted limbs and other birth defects.

About 480 people in Britain were affected, with around 60 of those from Scotland.

The thalidomide scandal led to years of litigation as victims and their families attempted to win compensation. As part of the campaign, there were boycotts of Guinness, which bought Distillers, the drug's manufacturers, in 1986, and some people even went on hunger strike to highlight the financial plight of victims.

Trust payments had been counted as income, which meant that victims had to pay tax.

The payments will now be re-classified so they become tax exempt, but this will not be backdated.