After new concessions from Chancellor Alistair Darling the rebel Labour MPs led by former Welfare Minister Frank Field have agreed to withdraw their amendment to the tax changes, which was due for vote on Monday.
Mr Field's amendment had requested immediate compensation for those losing out because of the new regulation, and some 40 of his fellow Labour MPs had signed it, enough to endanger the Labour majority of 67.
Many MPs felt strongly that the abolition of the 10p tax band was letting down their poorest voters, and some thought they were misled about the consequences last year by being assured nobody would lose out.
When the tax
bill was presented last year, only a handful of MPs and some newspapers warned about the impact of the change. The fact that many MPs who are usually loyal to the government have spoken up against it stresses all the more how serious the situation really is.
Following meetings with the concerned MPs the Chancellor promised to find ways to compensate those hit hardest when the 10p tax band was axed before this autumn's Pre-Budget Report, and he emphasized that, unlike previously stated, these measures would be backdated to the beginning of the current tax year.
Also, the Treasury is reported to hold an urgent inquiry into the impact of the abolition and to be working on proposals on possible ways to offer compensation, either in the form of tax credits, minimum wages or by raising personal income tax allowances in order to relieve low-paid people from paying tax.
Frank Field estimates that the government will have to raise up to £1 billion in compensation: "Most estimates suggest the losses on average are £2 a week, but let's say it is £4 a week – so that means the government needs to find between £500 million and £1 billion, since at most there are 5 million losers."
"There is unclaimed £1.2 billion in working tax credit, and Brown set up that credit specifically to help workers on lowish incomes", he suggests.
Although the concerned Labour backbenchers thought the government should come up with more substance, Mr Field welcomed the Chancellor's initiative: "It is terrific news for our constituents who earn modest wages and salaries and for Labour MPs who have been actively supporting their campaign."
"'The government has listened, and more importantly acted upon what many Labour MPs have been saying, and I shall now be withdrawing the amendment to the budget that stands in the name of nearly 50 Labour MPs."
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