Pressure mounts over tax changes

Many earning under £18,500 a year will lose out, MPs say

Ministers are coming under increasing pressure to rethink scrapping the lowest 10p rate of income tax, amid warnings it will hurt low earners.

The Commons Treasury committee said childless single people earning under £18,500 would lose up to £232 a year.

Some 73 Labour MPs have signed motions expressing concerns, among them David Hamilton, MP for Midlothian, who warned Gordon Brown could face a rebellion.

Treasury Minister Jane Kennedy said the government would not reverse the move.

She told the BBC's Newsnight programme: "I can't see us reversing this tax change at all.

"I think it's an important package and it is a very important integral part of the tax changes."

In last year's Budget, the then chancellor, Gordon Brown, cut the basic rate of income tax from 22% to 20% and increased tax credits. But he also scrapped the lowest, introductory - 10% - rate of income tax.

The changes came into force at the weekend, but MPs can still vote to reject them.

'Unreasonable target'

In a report, the Treasury committee claimed working-age people without children, and on incomes of under £18,500 a year, would be the "main losers".

Chairman John McFall, a Labour MP, said they seemed an "unreasonable target for raising additional tax revenues to fund the benefits of tax simplification and meeting the needs of children in poverty".

WINNERS AND LOSERS
Winners:

• Most people/ with incomes of £18,000+
• Under £18,000 but aged 65+ and therefore eligible for higher personal allowances
• Under £18,000 but with young children and therefore eligible for child tax credits

• Under £18,000 and ineligible for working tax credits because under 25
• Retired early and therefore ineligible for higher personal allowances
• Part-timer working insufficient hours to qualify for tax credits

Within the last two months, 73 Labour MPs have signed at least one of three Commons motions expressing unease at the abolition of the 10p rate.

Labour MP David Hamilton told the BBC the decision was "a mistake...and we need to rectify it before it goes any further".

If Gordon Brown does not act before Parliament returns on 21 April, a significant number of Labour rebels would try to force the government to change the law in parliament, he said.

Conservative leader David Cameron said it was "the wrong time to ask the lower paid to pay higher taxes" and promised to campaign against the change in the run-up to next month's local elections in England and Wales.

He added: "Our approach must be to do what we can to stop this tax-grab on some of Britain's poorest people."

Meanwhile, former Labour minister Frank Field is proposing an amendment to the Finance Bill - which confirms the tax system changes - asking for the low-paid workers affected to be compensated.

He said: "This is a group we should be saluting, who do some of the best jobs in our society for the least money."

'Saluting'

Lib Dem leader Nick Clegg said the abolition of the 10p rate had been a "cheap political stunt" to allow Mr Brown to take 2p off the basic rate of income tax "for the following day's headlines".

But Cabinet Office minister Ed Miliband, a close ally of Mr Brown, said: "When you look at the overall effect of the last Budget there are 16 million households, who gain, and the biggest gains go to the poorest 30% of people in our society.

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"Now, of course we could reverse all the changes made in that Budget but I think it would be the wrong thing to do, because I think it would make the tax system less fair than it is at the moment.

"And I think all the changes taken together make the tax system fairer and benefit the bottom third of our society, which is what a Labour Budget should do."

The prime minister's spokesman said: "The reform we made to the 10p rate was an integral part of last year's Budget.

"That Budget included a reduction by 2% in the basic rate of income tax from 22% to 20% which will benefit millions of people.

"It will lead to a significant increase in pensioner tax allowance, a widening of the working tax credit and increases in child benefit and child tax credit."

Asked if changes could be made, he said: "This was a coherent package of reforms."

The prime minister was in touch with Labour MPs "all the time", he added.

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