The Treasury has temporarily scrapped VAT on the sale of essential personal protective equipment during the coronavirus crisis.
It comes after weeks of demands from charities and unions to scrap the sales tax.
Unison's General Secretary Dave Prentis had called for the move to help ease the 'national emergency' in social care.
The Government is hoping to ease the finances of care homes and charities - which have seen their incomes slashed and face being crippled by the cost of buying PPE.
It came as MPs heard charities were “teetering on a cliff edge” at the very time they are needed to help cope with the coronavirus crisis.
The Treasury said the cut would save more than £100 million for those buying equipment such as face masks and surgical gloves.
Such items were previously subject to a 20% VAT which could not always be reclaimed by some care providers.
The tax cut will come into effect on Friday and last three months, the finance ministry said.
Although the government has committed to give hospitals within its state-run National Health Service whatever funding they need to fight the coronavirus, Britain's care system is more reliant on private providers.
The spread of the coronavirus in private care homes is a major cause of concern for the government, and an emerging front in the battle to limit the COVID-19 death toll.
The Bishop of St Albans, the Rt Rev Alan Smith, stressed the need for urgent assistance as the House of Lords debated online the challenges faced by the charitable and voluntary sector during the current Covid-19 pandemic.
While the outbreak had led to an increase in demand for support services, it coincided with groups seeing a significant cut to their income with the closure of charity shops and cancellation of fundraising events because of the lockdown, peers heard.
The National Council for Voluntary Organisations has estimated that the sector overall may lose around £4 billion over a 12-week period as a result of the pandemic.
It has warned that this would result in charities becoming unable to provide essential services at a time of increased need.
Speaking during the debate, the bishop said: "At the very time when we need every charity in the country to be mobilised and deployed, many charities are teetering on a cliff edge."
"Over the years, as the Government has rightly raised standards in safeguarding and heath and safety and training, charities have had to employ people to meet those requirements.
"And now, as fundraising activities and charity shops income has dried up, they are furloughing the very staff who are needed to oversee volunteers.
"Many charities are themselves major employers and as such are part of the drivers of economic recovery."
Labour's Baroness Wilcox of Newport said charities have already been "cut to the very bone" during 10 years of austerity and are now having to spend vast sums of money on personal protective equipment (PPE).
"More support must be leveraged into the charity sector to prevent it being decimated," she said.
