£2.7bn help plan for 10p tax losers

Chancellor Alistair Darling has announced a £2.7 billion cash injection to help low paid workers hit by the scrapping of the 10p tax rate.

The Chancellor told the Commons that he was raising the individual personal tax allowances for this year by £600.

Under the measure, to be included in the Finance Bill currently going through Parliament, he said that 22 million people on low and middle incomes would gain £120.

He told MPs it represented the "fairest and most effective way" to help those who had lost out due to the abolition of the 10p starting rate announced by Gordon Brown last year in his final Budget as Chancellor.

Mr Darling said that the one-off measure would see personal tax allowances raised to £6,035 backdated to the start of the tax year on April 6, benefiting all basic rate taxpayers under 65.

Of the 5.3 million households which had lost out, 4.2 million would receive at least as much as they had originally lost while the remaining 1.1 million would have their losses at least halved, he said.

From September, all basic rate taxpayers would get a one-off increase of £60, followed by a monthly increase of £10 for the rest of the year. Mr Darling said that he was financing the measure through borrowing so as not to take money out of the economy while it was slowing.

The announcement was greeted with cheers by Labour MPs who had been urging him to spell out the details of his compensation package ahead of next week's crucial Crewe and Nantwich by-election.

The abolition of the 10p tax was widely seen as one of the key factors in Labour's disastrous showing in this month's local council elections.

The announcement was dismissed by shadow chancellor George Osborne, who said Mr Darling had been given the "humiliating" task of "clearing up the mess" left by Mr Brown.

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