Cut now, pay later

Cut now, pay later

Three weeks have passed since the chancellor signalled the first retreat on the abolition of the 10p tax band. In a public letter to a select committee chair, Alistair Darling hinted that there might be early help for pensioners, but said wider plans for compensation would have to wait till autumn. Time was needed, or so it seemed, to figure out how to target help on those impoverished workers who truly needed it. Yesterday, however, came a second retreat. Mr Darling came to the Commons to announce an early tax cut, for everybody except the rich. The checkout girls and cleaners whose 10p losses have weighed so heavily on Labour consciences will be handed £120 this year - but so too will teachers and retail managers who never lost out in the first place.

Throwing cash around like confetti, Mr Darling mightily raised Labour spirits. A parade of backbenchers welcomed the news, and the leading 10p rebel, Frank Field - who had been demanding the prime minister's head - declared "an end to the issue". He even apologised for being so nasty about Gordon Brown. Labour's fun was compounded by the Conservatives being caught off guard. Shocked by the sudden news, of which he had no advance notice, the shadow chancellor, George Osborne, seemed unsure whether to praise the move or damn it. For one afternoon, at least, the government was back on the front foot.

As always with tax announcements, there will be further quibbles. A fifth of the original losers will.....continued below

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still be short-changed, although mostly by trivial amounts. The clawing back of the handout from higher-rate taxpayers will drag more people into 40% tax. That may attract passing controversy but will not catch fire, as none of them will be worse off overall. The basic proposition - a £600 increase in the personal allowance - is so simple that it lacks the detail that could harbour a serious devil. Most people will pay a little less tax, and some will be taken out of tax entirely.

There is, however, a sting in the tail on the question of paying the bill. Yesterday amounted to an emergency budget, and one that gave more money away than any real budget since 2001. The margin by which the government plans to steer clear of its overdraft limit has been cut to just £100m, a statistical cigarette paper. In reality the self-imposed fiscal rules about which Mr Brown once boasted are almost certain to be breached. Yesterday's tax cut is notionally for one year, but reversing it would be electoral suicide. The inevitable decision to make it permanent will confirm that as prime minister the one-time iron chancellor fails to be ferrous in defending the public finances.