Darling unveils 10p impact review

The chancellor has said he is to look at compensating low-paid pensioners and childless workers over impact of the 10p tax rate abolition.

In a letter to the chairman of the Commons Treasury committee on Wednesday, Alistair Darling sought to persuade MPs that the government is listening to their concerns.

Darling said he would assess the average impact among the estimated five million people who have lost out from the changes by reviewing tax credits, the minimum wage and the winter fuel payments system.

And he said that all changes would be backdated to the start of this financial year.

However the prime minister's spokesman denied that the review amounted to a U-turn.

"There is no question of not going ahead with the abolition of the 10p tax rate. It was the right thing to do," he said.

The announcement came as Gordon Brown prepared to face questions from MPs on the controversial decision from all sides of the House during prime minister's questions in the Commons.

The prime minister is facing the prospect of his Finance Bill being defeated by MPs next week with around 40 of his own backbenchers opposing the measure first announced by Brown in his Budget last year.

Rebels

Darling told a meeting of Labour's finance committee on Tuesday that he would act to offer compensation to those affected before next April, a key demand of the rebels.

The Treasury is also thought to be considering increasing income tax personal allowances to help low earners affected by the abolition of the 10p rate.

As many as five million low-paid workers are worse off as a result of the change, which came into force this month in order to pay for a 2p cut in the basic rate of income tax.

The Conservatives and Liberal Democrats are both opposed to the plan and could combine with Labour MPs to defeat the measure and force a new mini-Budget.

The rebels are looking for a £1bn compensation package paid for out of unclaimed tax credits.

Interviewed in Wednesday's Guardian newspaper, former welfare minister and rebel ringleader Frank Field said: "No-one in their right mind wants to vote against the government, but this is in a different category to anything we have faced over the past 11 years in that the golden thread that ties us together is to protect the poorest.

"I feel sick when I vote against the government, but I think it is very important that the low-paid know we are going to deliver."

"We have got local elections and we have got to get back on the front foot by saying this was an error," he added.

"We all in our personal lives make errors, and we make them as organisations, but the crucial distinction is, do we deny it, or do we acknowledge them? We need to send a clear message to low-income voters that they are going to be recompensed this year for the increased taxes they paid."

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