Ministers refuse to back down in row over abolition of 10p tax band

Ministers refuse to back down in row over abolition of 10p tax band

The government refused to back down yesterday in the row over Gordon Brown's abolition of the 10p income tax rate as a powerful group of MPs confirmed that the move would leave many low-income, childless households worse off.

The Labour-dominated Treasury select committee criticised the chancellor, Alistair Darling, for failing to soften the blow which last year's tax simplification - coming into effect this week - will have on people below the age of 60 and earning less than £18,500 a year.

The MPs say in a report published today that the people affected are an "unreasonable target for raising additional tax revenues" to finance measures to curb family poverty.

Three weeks before the local elections in May, a Sunday Telegraph/ICM opinion poll yesterday showed Labour on 32% and the Lib Dems on 18%, each trailing behind the Tories' 43% - a finding that leaves Labour MPs increasingly dismayed at the impact of the tax decision.

Both David Cameron and the Lib Dem leader, Nick Clegg, weighed into the row. Cameron urged Labour MPs to work with the Tories to reverse the changes in this year's finance bill, while Clegg called the change a "defining moment" when Labour had abandoned fairness and hit the pockets of five million poor people.

But yesterday John Hutton, the business secretary, insisted that the changes, which also see the standard rate of income tax dropping from 22p to 20p, would leave families with children "significantly.....continued below

Advertisement starts

---

---

Advertisement ends

better off", and those adversely affected only slightly worse off. Hutton said on BBC TV's Andrew Marr Show: "We are talking in the worst case scenario about half a per cent of net income being the scale of the maximum loss that someone might have."

The all-party Treasury committee acknowledged that Darling's budget would make a "major contribution" to reducing poverty, but warned against complacency. The committee also complained of meagre resources for tackling child poverty and fuel poverty among pensioners.

The committee Labour chairman, John McFall, believes the government has underestimated the credit squeeze. In the budget in March, Darling lowered growth forecasts for this year and next by a quarter point to 1.75%-2% for 2008, and 2.25%-2.75% for 2009. But experts believe his predictions have been overly optimistic when homeowners and consumers are already suffering from the credit crisis. McFall said: "The Treasury's forecast of economic growth in the next two years is more optimistic than the consensus view. Critical to this forecast is the resilience of the UK economy to shocks. Some of the very things that have kept our economy growing over the last decade may start to cause us problems, and the 2008 budget may not have recognised this fully."

His comments echoed opposition warnings that the government was sailing unprepared into the worst financial storm for 20 years. But ministers insist Britain has more scope than most to cope with the credit crunch, cutting interest rates but not counter-cyclical public spending.