Darling may compensate those hit by scrapping of 10% tax bracket

21 April 2008 / by Daniela Gieseler
Chancellor Alistair Darling has promised to draw up a rescue package for people on low incomes hit by the abolition of the 10 per cent tax rate in order to fend of a Labour backbench rebellion.

In last year's budget the government not only lowered the standard tax rate from 22 per cent to 20 per cent, but also axed the starting tax band of 10 per cent. Critics have warned that the change would leave 5.3 million people on low incomes considerably worse off, particularly pensioners and childless couples.

Although he insisted he could not "rewind the Budget" and no immediate changes would be made, he promised that the Treasury will look into potential ways to compensate the low-paid for their losses, possibly as soon as this coming autumn in the pre-budget report or next year's budget.

"Inevitably when a change of this magnitude was made there were a number of people who wouldn't gain," he conceded, and affirms: "I attach considerable importance to making sure that we help people on lower incomes."

Darling's concession comes as a growing number of deeply alarmed Labour MPs, including some former ministers, raised their voices against the tax changes because they believe the abolition infringes upon one of their core beliefs, easing the burden of the poor.

The MP for Sheffield Hillsborough, Angela Smith, even threatened to resign over the tax issue and had to be persuaded to stay in office by the Prime Minister.

The infighting over the tax issue could have detrimental effects on Labour both in the short-term and the long-term: the unity within the party will be put to a first test in a crucial vote on an amendment of the Finance Bill next Monday which might result in a damaging defeat for the government.

The amendment has been prepared by former Labour Welfare Minister Frank Field and requires the government to supply an immediate compensation package for the lower-paid.

Some 70 Labour MPs have threatened to vote for the amendment, and opposition leader David Cameron has affirmed that he would try to solicit Labour MPs' support for a change of the Finance Bill.

Some critics doubt that the concerned Labour MPs will take the Chancellor's bait and change their mind on the vote this coming Monday: "The idea that somehow we'll do something undefined in the future to protect the poorest people in work, just is not on for most Labour backbenchers", Mr Field affirmed.

Tory leader David Cameron said Mr Darling "should get of his backside and start rewriting his Budget to stop targeting 5.3 million of the lowest-paid people in our country."

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