Philip Webster, Political Editor
Alistair Darling cut taxes yesterday for 22 million
people to make good the losses of only 4 million, in
the biggest financial and political U-turn of modern
The Chancellor borrowed £2.7 billion to give those
on low and middle incomes an extra £120 this year, in
a desperate move to end the row over the abolition of
the 10p rate that has brought Labour to its knees and
left Gordon Brown fighting to survive.
The emergency mini-Budget was forced on Mr Darling
by the need to avoid Commons defeat on his Finance Bill.
It is the first time in living memory that income tax
has changed within a financial year, and it happened
only two months after the Budget.
Analysts pointed out swiftly that the further increase
in borrowing would have to be paid for eventually by
higher taxes or cuts in spending.
It came on a day when government fears that a housing
crash may be on the way were laid bare by a ministerial
Caroline Flint, the Housing Minister, walked into a
Cabinet meeting with a briefing paper clearly visible
and stating that “at best” housing prices this year
will fall by 5 to 10 per cent.
Meanwhile, latest figures put inflation at a much higher
than expected 3 per cent, dousing hopes of an interest-rate
cut next month.
Despite Mr Darling’s moves, more than one million of
Britain’s poorest paid will still lose out from the
abolition of the 10p rate, although their losses have
been at least halved and they have been promised more
help later this year.
The Treasury put their average losses at about £50,
but experts say that the 20 per cent of people who still
are not fully compensated will be the ones who were
hardest hit in the first place – those earning just
over £8,000. They lost close to £230 when the 10 per
cent rate was abolished and will only benefit by £120
from this package.
George Osborne, the Shadow Chancellor, said that Mr
Darling had been humiliated into coming to the Commons
with “a mini-Budget to clear up the mess made by the
Prime Minister in his last Budget as Chancellor”.
He added: “Let no one be fooled why he is making this
statement today – not because he wanted to . . . but
because this divided, dithering and disintegrating Government
are panicking in the face of the Crewe & Nantwich by-election.”
After weeks of considering measures targeted specifically
at those who were losing out, Mr Darling, urged on by
Mr Brown and other senior ministers, went for broke
and raised allowances for all basic rate payers by £600.
It means that anyone earning up to £40,835, the higher
rate threshold, will gain £120 this year. The level
at which people pay the higher rate of tax will be reduced
to prevent higher rate taxpayers gaining.
All basic rate taxpayers will gain and even the 150,000
moving into the higher rate as a result of yesterday’s
changes will be up to £120 better off.
The money will be forthcoming through a £60 lump sum
in September pay packets, followed by £10 a month extra
until the end of the year. The gainers include 17 million
basic rate taxpayers who did not lose out at all from
the loss of the 10p band. Some 600,000 people on low
incomes will be taken out of income tax altogether.
The scale of Mr Darling’s climb-down stunned the Commons
even though it was designed to deal with this year’s
problems. He will have to come back in the autumn with
long-term solutions to the problems thrown up by the
10p rate abolition.
The package killed at a stroke any chance of a revolt
by backbench Labour MPs. Mr Darling presented it as
a “family tax cut” to help those on low and middle incomes.
Whether it will stave of defeat for Labour in next
week’s Crewe & Nant-wich by-election appeared unlikely.
In the Commons, Frank Field, who led the 10p rebellion,
gave an unreserved apology to Mr Brown for making a
personal attack on him on Sunday. Mr Field said that
it should “put an end to this issue.”