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Govt bows to pressure on income tax changes

23/04/2008

Government concessions on compensation for those losing out under recent income tax changes have placated rebel Labour MPs led by backbencher Frank Field.

Mr Field confirmed the amendment, which had attracted the support of over 40 rebel Labour backbenchers, would not be tabled following concessions in a letter to Treasury committee chairman John McFall by chancellor Alistair Darling.

Mr Darling said in the letter the Treasury's focus would now be on allowing the "average losses" from the removal of the 10p starting rate of income tax for low-paid families to be "offset".

And for pensioners aged 60-64 Mr Darling said the government had "put in hand work" to compensate those losing out through the winter fuel allowance.

"As a sign of the government's intent, we do not wish to wait unnecessarily until November," the chancellor added in the letter.

"Whatever conclusions we come to, all the changes will be backdated to the start of this financial year."

Mr Field said the chancellor's statement was "terrific news".

"The government has listened, and more importantly acted upon what many Labour MPs have been saying, and I shall now be withdrawing the amendment to the Budget that stands in the name of nearly 50 Labour MPs," he said.

Mr Field congratulated the chancellor for "actively seeking ways of compensating workers made worse off by the loss of the 10p starting rate of tax".

The prime minister introduced the changes in the 2007 Budget, his last as chancellor, alongside a cut in the basic income tax rate from 22p to 20p and a tax credit expansion. The changes came into force earlier this month.

Mr Brown has since pointed to the Labour government's record in the fight against poverty since 1997. Chief secretary to the Treasury Yvette Cooper told the Commons on Monday those losing out from the 2007 Budget were still on average £500 a year better off than under the 1997 personal tax regime inherited from the Tories.