Page last updated at 18:31 GMT, Tuesday, 1 July 2008 19:31 UK

Ministers see off 10p tax fight

MPs say 1.1 million of the lowest earners are still out of pocket

The government has headed off a threatened Commons revolt over the scrapping of the 10p tax band.

About 20 Labour MPs were threatening to rebel unless extra compensation was given to 1.1 million low-paid people who have lost out from the move.

But they backed down after Treasury Minister Jane Kennedy promised the chancellor would deal with the issue in his pre-Budget report in the autumn.

The Tories said the Budget had been a "fiasco" which had "unravelled".

In May, Chancellor Alistair Darling quelled a possible backbench rebellion when he announced a 2.7bn compensation package for those who lost out by the ending of the "starting rate" of income tax.

Taper mechanism

However, Labour MP David Taylor said he wanted compensation for the 1.1 million people who were not helped by the government's package, otherwise he would force a vote on his amendment.

The cost of the help under his taper mechanism would be 66m, with the 1.1 million people receiving an average of 60 in compensation.

The chancellor will bring forward proposals. They will be concrete proposals. They will be implement-able as soon as possible
Jane Kennedy
Treasury Financial Secretary

"This is not some enormous sum - this is a sum of the kind the chancellor might find down the back of a metaphorical settee at the time of making his Budget. It really is a trivial sum," he said.

However, he decided not to press his amendment to a vote after the government insisted it was working to compensate households which lost out.

Pressed on the issue by Labour ex-welfare reform minister Frank Field, who led the first rebellion, Ms Kennedy promised: "We will return to this issue at the pre-Budget report.

"The chancellor will bring forward proposals. They will be concrete proposals. They will be implement-able as soon as possible."

Mr Taylor conceded that he was taking it on a "huge amount of trust and goodwill" that the government's pledge would hold firm.

'Rabbit out of the hat'

Labour's Lynne Jones, who also put forward an amendment, told MPs she would not put it to the vote but was seeking "cast iron" assurances that the 1.1 million people would be compensated.

Mr Field has warned of a possible censure motion in the autumn if ministers did not make good on their promises.


But shadow chief secretary to the Treasury Philip Hammond spoke of the "fiasco of the 2008 Budget and Finance Bill" which he said had "unravelled on a scale unprecedented in modern political history".

He said the 2.7bn package had not been a well-thought through measure but a "rabbit out of the hat", shortly before the Crewe and Nantwich by-election.

Jeremy Browne, for the Liberal Democrats, told MPs that even a moment's examination of the 10p tax abolition would have shown it would be "disadvantageous to millions of people". He accused Mr Brown of trying to ape the Conservatives by "achieving the Thatcherite dream" - a 20p basic income tax rate - and said it was a "manifestly political move" about "positioning" as Mr Brown sought to succeed the then prime minister Tony Blair.

MPs also voted through the government's measures to raise the personal allowance to 6,035 and reduce the higher rate threshold to 34,800 as part of the rescue package announced in May.

The Commons Treasury select committee said the existing 2.7bn package would compensate most of the 5.3 million affected by the 10p decision, but leave 1.1 million up to 120 a year worse off.

The chancellor's compensation package was produced after Labour backbenchers had threatened to block the Budget by preventing the Finance Bill passing through Parliament.

The decision to scrap the lowest 10p tax rate, made by Gordon Brown in his last Budget as chancellor in 2007, came into force in April this year - alongside a reduction in the basic rate of tax from 22% to 20%.

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Basic rate taxpayers to get 120
13 May 08 |  UK Politics
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