Rebel MPs back Gordon Brown after 10p tax climbdown

Apr 24 2008 By Jonathan Walker, Political Editor

Labour MPs rallied round Gordon Brown last night after he was forced into a climbdown over controversial tax reforms.

The Government agreed to compensate pensioners, young people and childless people on low incomes who lost out from the decision to axe the 10p starting rate of income tax – and to backdate the payments to the start of the financial year.

The promise was enough to satisfy backbenchers who had been threatening to vote down the Government’s plans in the House of Commons next week. A rebel amendment, which had been backed by 46 Labour MPs including Gisela Stuart (Lab Birmingham Edgbaston) and Roger Godsiff (Lab Birmingham Sparkbrook & Small Heath), was withdrawn after Alistair Darling, the Chancellor, announced the concessions yesterday.

Ms Stuart said: "I’m glad the Government is listening and responding to our concerns. I’m glad that we are able to say we are tackling poverty and inequality."

Birmingham MP Richard Burden (Lab Northfield), who had also criticised the tax reforms, said: "The Government has listened, and it takes a big person to do that."

He denied Conservative claims that Gordon Brown had been forced into a "humiliating climbdown", saying: "People want their Government and ministers to listen, which is what they have done."

However, Conservative MP Andrew Mitchell (Con Sutton Coldfield) claimed Mr Brown had been forced to back down in order to save his premiership.

Mr Mitchell said: "Gordon Brown made this U-turn not because he thought it was right, but because he was forced to."

In a letter to the chairman of the Commons Treasury Select Committee, Mr Darling said he would use the winter fuel payment system, tax credits and the minimum wage to help two groups thought most likely to lose out from the abolition of the 10p rate – low-income households without children and pensioners aged 60-64.

The announcement came just moments before Mr Brown’s weekly appearance before MPs for Prime Minister’s Questions in the Commons, which Conservative leader David Cameron quipped should be renamed "Prime Minister’s U-turns".

But Mr Brown said the 10p rate was not the best way to boost the incomes of the poor, who had benefited from improvements in tax credits and the minimum wage under Labour.

"The central issue is that we have taken more people out of poverty than any previous Government," Mr Brown told the Commons.

The choice is very clear – between a Conservative Party that would cut the incomes of the poor and a Labour Party that will increase them."

Mr Darling’s action came amid mounting pressure from Labour backbenchers worried about the impact of the abolition of the 10p rate, which was announced by Mr Brown in his final Budget as Chancellor last year and comes into effect this month.

About 5.3 million people – many of them low-paid workers earning less than £18,000 a year – are expected to see a cut in their pay packet this month as a result.

In a letter to the Treasury Select Committee, the Chancellor spelled out how he intends to help those affected: "For pensioners aged 60-64, whose incomes tend to be more stable, we have put in hand work to see if those households who have lost out from the removal of the 10p starting rate of income tax can be helped through the mechanism that already exists to pay the Winter Fuel Allowance.

"As a sign of the Government’s intent, we do not wish to wait unnecessarily until November. Whatever conclusions we come to, all the changes will be backdated to the start of this financial year.

"For other low-paid families currently outside the working tax credit system, while we will examine in our review all practical propositions, our focus is on potential changes to the tax credits system to allow the average losses from the removal of the 10p starting rate of income tax to be offset.

"At the same time, the Secretary of State for Business, Enterprise and Regulatory Reform (John Hutton) and I have asked the Low Pay Commission to report on what changes could be made to the minimum wage regime to support younger workers. We will look at other measures alongside this."

Meanwhile, the committee will carry out its own investigation into the impact of the tax changes on Britain’s poorest households, which will report in July before MPs have their final chance to vote on the Finance Bill.