Page last updated at 16:17 GMT, Wednesday, 4 June 2008 17:17 UK

10p tax help too slow - Darling

Alistair Darling
Mr Darling has been explaining why the 10p tax rate was abolished

Chancellor Alistair Darling has admitted to MPs that ministers should have moved "faster" to compensate those who lost out over the 10p tax rate.

And he said he wanted to do more to help the million people not compensated by his 2.7bn emergency package in May.

He said compensatory measures for the over-65s and many parents were brought in when the tax rate was scrapped.

But he said: "Should we have gone faster and further? Yes we should, which led to my announcement in May."

Mr Darling was answering questions from MPs on the Treasury Select Committee, which is holding an inquiry into the effects of the 10p tax band being axed.

Fiscal rules

Before he announced concessions in May, it was estimated that 5.3m low-paid people would have been left worse off by the change - which threatened to provoke a backbench rebellion by Labour MPs.

He told MPs he did not accept he had put the government's own fiscal rules, which require public sector borrowing to be held below 40% of national income, at risk by his concessions.

It was necessary to announce it as quickly as possible - we should have done something faster and we should have done more
Alistair Darling

He said it would have been wrong to take the money out of the economy, by tax increases elsewhere, at a time the economy was slowing.

In May, just weeks after the Budget and following a rebellion by Labour MPs, he announced a 2.7bn package effectively giving an extra 120 this year to all basic rate tax payers.

Conservative MP Philip Dunne quoted an interview Mr Darling did shortly after becoming chancellor, in which he said that any tax changes should be "made at the proper time, in the context of the Budget, or the pre-Budget report".

Failed in job?

Mr Dunne asked if Mr Darling felt he had failed in the job.

The chancellor: "I think in relation to the announcement made in May, I'm not aware that there are many people who are seriously suggesting we should not have said anything until November.

"It was necessary to announce it as quickly as possible - we should have done something faster and we should have done more and I think, having recognised that, it would have been completely wrong to have delayed making any announcement until the autumn."

"I have said on many occasions that I'm sorry this situation arose in the first place and it has been sorted out."

'More to help'

Asked if a full analysis had been done of the effects of the change when it was being planned, he said "the distributional effects of any changes are looked at" and it had been recognised some people would lose out.

Some changes had been made to help those aged over 65 and families with children but added: "If you are asking should we have gone faster and further, yes we should have."

He said about four million people left worse off by the abolition of the lowest tax rate had been compensated, but admitted a further one million were still worse off.

"There are people we still want to do more to help and we will do that in the context of the Pre-Budget Report," he said.

But he refused to outline exactly what he was intending to do once this year's tax concessions expired but said he was committed to helping those on low incomes.

Conservative MP Michael Fallon said, as it was estimated that four million people hit by the 10p tax band abolition had been helped - along with a further 13 million families, if the higher personal tax allowance was not continued it was inevitable that 13m people would be worse off next year.

Mr Darling urged him to wait to see what measures he put forward in the pre-Budget report.

The decision to abolish the 10p tax rate, made by Gordon Brown in his last Budget as chancellor, came into force in April this year - alongside a reduction in the basic rate of tax from 22% to 20%.

The Treasury committee is conducting a brief inquiry into the abolition of the 10p tax rate and compensatory measures that is expected to report within weeks.

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