Labour MPs "dismayed" at abolition of 10p tax rate

10p tax rate abolished April 6th

Thursday, 03, Apr 2008 12:00

Labour MPs are in "open revolt" over Gordon Brown's plans to abolish the 10p rate of tax, the Conservatives have said.

At least 43 Labour MPs, including former ministers, have now signed an early day motion expressing their "dismay" at the government's decision to scrap the lowest tax band, announced in Mr Brown's final Budget last year.

The Institute of Fiscal Studies says the move will leave 5.3 million families earning between £5,400 and £18,500 a year worse off.

Mr Brown argues the move is compensated by an increase in Tax Credits but MPs are concerned not all low-earners will benefit.

The motion calls on Alistair Darling to "correct the damaging change in the taxation system".

From Sunday, the 10p tax rate will be abolished to pay for a cut in the basic rate of income tax from 22p to 20p.

Mr Brown reportedly discussed the change with MPs at Monday night's meeting of the parliamentary Labour party, but an increasing number of his critics appear unconvinced.

The Liberal Democrats said Labour MPs were now "waking up" to the former chancellor's "tax con trick".

Treasury spokesman Vince Cable said Mr Brown had hit some of the poorest people in society in his quest for "cheap headlines".

"If there had been an election last year he might have got away with it, but as the credit crunch starts to bite people will find this kind of short-term political manoeuvring hard to forgive," Mr Cable said.

Ministers insist low-earning families will be better off overall and have encouraged Labour MPs to focus on the entire Budget.

Treasury minister Jane Kennedy said all families are better off when Labour's full package of reforms is taken into account.

Speaking to the BBC's World at One, she said he understood why some MPs were "puzzled" by the move, however.

But she said even people that would superficially "lose out" under the change would find they are an average of £505 a year better off because of the reforms introduced since 1997.

Shadow chancellor George Osborne said Mr Brown's tax policy was falling apart.

"There is an open tax revolt in the Labour Party and it shows the government is in disarray as a serious economic crisis looms," he said.