Page last updated at 16:59 GMT, Thursday, 3 April 2008 17:59 UK

Minister defends income tax move

Alistair Darling, Angela Eagle and Jane Kennedy
Jane Kennedy (right) is one of Alistair Darling's team at the Treasury

A Treasury minister has defended the axing of the starting 10p income tax rate - after 43 Labour MPs signed a motion saying it had been "damaging".

Jane Kennedy said while she understood "a lot" of Labour Party members were "puzzled" at the move, it was a way to redirect help to low-earning families.

When combined with all reforms since Labour came to power, "all families are better off", Ms Kennedy told the BBC.

The measure comes into force when the new UK tax year begins this Sunday.

It was announced in Gordon Brown's final Budget as chancellor, in March 2007.

He decided to reduce the basic rate of income tax from 22% to 20% at the same time as scrapping the lower 10% rate.

At prime minister's questions on Wednesday, William Hague, the shadow foreign secretary, warned that five million low-income households would be worse off as a result of the changes.

'Disappointed'

A number of former ministers are among the 43 MPs to call on the current chancellor, Alistair Darling, to "correct this damaging change to the taxation system".

And several MPs confronted Mr Brown about the matter when he addressed this week's regular meeting of the Parliamentary Labour Party, it has emerged.

We should have woken up to it sooner and it would have been easier to do something about it earlier on. It's something we should look at
Nia Griffith, ministerial aide

One of them, ministerial aide Nia Griffith, said the changes did "not look good" as far as voters were concerned.

"People have to balance out all the other things that Labour have done and they have to come to their decisions," she told BBC Radio 4's The World at One.

"They were obviously disappointed because they had been supporters of Labour and had always felt that the Labour Party had championed the less well-off.

"We should have woken up to it sooner and it would have been easier to do something about it earlier on. It's something we should look at."

Mr Brown had "pointed out things like the increased winter heating allowance and the fact that many people will have the credits and things which mean that they won't actually pay extra", she said.

"But obviously there is this particular category and, to me, every person matters and I am very concerned."

'Increased tax credits'

Interviewed on the same programme, Ms Kennedy said senior Labour figures "do understand the concern" within their party.

"That's why so many Labour backbenchers are saying, 'How is it that we're doing this,' and, 'What are the reasons for doing it?'

"That's why it's important that I explain what the reasoning was behind the overall tax package."

She said even those who "lose out" because of this change "will have found that on average they are 505 a year, or 9.70 a week, better off overall, as a result of all of the changes that we've introduced since 1997".

The lowest fifth of taxpayers are around 12% better off because of all the reforms that were made since 1997
Jane Kennedy, Treasury minister

People "will see that their weekly income is being affected by a number of things", she said.

"They will see that their tax credits will be increasing, particularly families with children are some of the biggest gainers as a result of the overall package."

And Ms Kennedy added: "The lowest fifth of taxpayers are around 12% better off because of all the reforms that were made since 1997."

She said the government would be ensuring the available resources would go "to the people who need them the most".

Shadow chancellor George Osborne claimed there was "an open tax revolt in the Labour Party" which showed the government was "in disarray as a serious economic crisis looms".

"Dozens of Labour backbenchers are publicly attacking the prime minister for the effect of the abolition of the 10p tax rate on the poorest," he added.

"Gordon Brown's tax policy is falling apart."


SEE ALSO
Your tax questions tackled
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Cameron says Brown in 'deep hole'
21 Mar 07 |  UK Politics
Who will pay for the tax cut?
21 Mar 07 |  Business
Brown cuts basic tax rate by 2p
21 Mar 07 |  UK Politics

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