Darling makes 10p tax statement

Last Modified: 13 May 2008
Source: ITN

Chancellor Alistair Darling has set out plans to compensate families who lost out when the 10p tax rate was scrapped.

Mr Darling told the Commons he would be increasing the individual tax allowance by £600 to £6,035, backdated to April 6 this year. The threshold for the higher rate will be reduced by £600, offsetting the benefit to wealthier people.

The Chancellor said the changes were "the fairest and most effective way" of helping those hit by the abolition of the 10p tax rate.

In a surprise move greeted by loud Labour cheers, Mr Darling told the Commons that the change would cost £2.7 billion and would be funded by borrowing.

"This will mean that 22 million people on low and middle incomes will gain an additional £120 this year," he said.

Shadow chancellor George Osborne said it was "humiliating" for Mr Darling to have had to come to the Commons and set out a "mini budget" to rectify mistakes.

Mr Darling, who faced a Labour backbench backlash over the scrapping of the 10p tax band, said the change was the "fairest and most effective way" to help those who lost out.

He said people aged between 60 and 64, whose average loss was £100, will get the advantage of increased allowance worth up to £120 and receive the additional £50 winter fuel payment for this year.

From September basic rate taxpayers will see a one-off increase in their monthly income of £60 and then a rise of £10 a month for the rest of the financial year.

To focus help on low and middle income households, the Chancellor said he was reducing the threshold at which people start to pay tax at the higher rate by £600 to ensure higher rate taxpayers were "unaffected" by the rise in personal allowance.

The changes will be legislated for in this year's Finance Bill.

Mr Darling said the change would help all basic rate taxpaying families at a time when oil and food prices had been rising worldwide. Proposals for next year would be set out in the Pre-Budget Report later this year.

He said it was "right and sensible" to allow borrowing to rise and investment to be maintained as the economy slowed.

"I am able to finance this proposal through borrowing this year ensuring that we do not take money out of the economy at this time."

Mr Darling added: "For future years our aim is to continue the same level of support for those on lower incomes and I shall bring forward proposals to do this at the Pre-Budget Report."

Meanwhile, former welfare reform minister Frank Field apologised "without reservation" to Prime Minister Gordon Brown for allowing his campaign over the scrapping of the 10p rate to "become personal".

Labour backbench rebels, led by Mr Field, had put the Chancellor under intense pressure to come up with an adequate compensation package.

Mr Field infuriated Cabinet ministers at the weekend by saying he would be "very surprised" if the PM lasted another two years in the job. He said the Premier was visibly unhappy in his position, branding it a "tragedy".

And he held out the prospect of a Commons defeat for the Government on the Budget without further reassurances on tax reforms.

But Mr Field has now unequivocally welcomed the compensation scheme, telling Mr Darling: "Can I congratulate you for putting an end to this issue. And could I hazard a guess that the pleasure that is being expressed on this side of the House will be widely expressed in the country as well."

He added: "As the Prime Minister is in his place, might I also add that over the weekend I allowed my campaign to become personal. I much regret that and I apologise without reservation."

Mr Darling replied: "I am grateful for what you have said in both respects. I may say it is not every day that Members have the courage to say what you said and it is appreciated."

These news feeds are provided by an independent third party and Channel 4 is not responsible or liable to you for the same.