Gordon Brown is abandoning New Labour principles with a "Denis Healey era" emergency budget and "class war campaigns", the Conservatives claim.
Tory leader David Cameron accused the prime minister of "not being straight" with people over the housing crisis, EU Treaty, 10p tax plans and the Union.
Mr Brown hit back "It's about time, instead of being a salesman, you started to show some substance."
Lib Dem Nick Clegg claimed 1m people had been "betrayed" by the 10p tax.
Shadow chancellor George Osborne said the 10p tax issue had also damaged "any kind of reputation" the PM had for economic competence.
On Tuesday the personal tax allowance was raised by £600, giving earners up to £40,835 an extra £120 this year.
Mr Osborne says the compensation deal was "an exercise in political survival" for Mr Brown, in the face of a threatened rebellion by angry Labour MPs and an imminent by-election in Crewe & Nantwich.
'Short-term fix'
"No-one believes that Gordon Brown genuinely thought he had made a mistake," he told BBC Radio 4's Today programme.
"No-one believes that Gordon Brown genuinely wanted to help people affected by his own Budget.
"This is a short-term political fix and it's done enormous damage to any kind of reputation he had for economic competence."
"The reason they did this is because they are in a disastrous political position, they have no compelling vision for the country and they are in an economic mess"
The measures, unveiled in a Commons statement by Chancellor Alistair Darling, will benefit 22m people on low and middle incomes, at a cost to the Treasury of £2.7bn and will be funded through borrowing.
But Mr Osborne says people are "not fools" and "will see straight through" the deal, because they know its a "one off measure" that will result in tax rises next year.
"They also see that the poorest are still the worst affected," he said.
"They see a government that's abandoning the founding principles of New Labour which was that you got away from the kind of emergency budgets of the Denis Healey era, that you didn't fight class war campaigns, that you tried to occupy the centre ground.
"That's what the political success of New Labour was built upon and Gordon Brown has abandoned it."
'Difficult by-election'
Mr Osborne said the Conservatives had suggested raising the personal tax threshold, but Mr Brown had "rejected" that plan, as he had throughout most of his political life.
"The reason they did this is because they are in a disastrous political position, they have no compelling vision for the country and they are in an economic mess, so we can't really say: 'Well done Gordon Brown'," he said.
"This whole business over the 10p is something we could have handled better - we are now putting that right"
"We were pressing them to do something in a sensible way, as part of a broader Budget package, not to announce in the middle of May, in the dog days before a difficult by-election, an emergency Budget."
Mr Osborne said there were still 1.1m people - those that earn between £6,500 and £13,500 - who would not be helped by the compensation deal at a time when they were struggling with rising food and fuel bills.
"Maybe Gordon Brown made another of his cynical calculations, which was that these people are probably the people who would shout least in our society," he added.
Vincent Cable, the Lib Dem treasury spokesman, said while he welcomed the move to lift the personal tax threshold, Mr Brown's economic reputation was "in danger of being cut to shreds".
"The big signal that's now being sent is the government is very weak and if it's faced with a problem of this kind, it will throw money at it," he said.
'Sorting it out'
"If over the next two years there are regular crises in the housing market, in energy and food, what will they do? Will they simply spend more? Do more borrowing?"
Mr Darling said he knew he "had to sort this problem out" and had decided to bring forward the compensation package, ahead of this autumn's pre-Budget report, because he wanted to help those struggling with rising costs.
"This whole business over the 10p is something we could have handled better - we are now putting that right," he told Today.
"People say 'yes, you should be sorry for what you have did' - we are sorting it out now.
"Rather than waiting until October, which means actually we couldn't put money into the hands of taxpayers until late spring, I thought it better to bring forward that proposal now."
Mr Darling added that the compensation went wider than the people who lost out over the 10p rate and helped middle income earners of up to £40,000 a year.
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