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18M 'will lose out over tax cut'
Eighteen million families stand to lose out to the tune of around £150 a year unless Chancellor Alistair Darling can find a way to extend his one-off tax cut announced in last week's "mini budget", independent researchers have warned.
Mr Darling's £2.7 billion emergency package to raise tax thresholds was designed to compensate the 5.3 million households who lost out as a result of the scrapping of the 10p tax rate.
But some 22 million people on low and middle incomes will gain from the changes, which have been backdated to the start of the tax year on April 6.
The Institute for Fiscal Studies (IFS) has now calculated that by 2010/11, 18 million of those families will be worse off by an average of £150 a year compared to now unless the changes - together with the top-ups to the winter fuel allowance - are extended.
With political pressure to avoid unpopular tax rises ahead of a general election, the IFS said the Government may be tempted to increase borrowing - even if it means breaching its own tax and spending rules - rather than reverse the changes.
At the same time, the IFS warned that almost a million of the poorest families would still lose out this year as a result of the abolition of the 10p rate.
The IFS said that raising tax thresholds this year is already set to take borrowing to "within a whisker" of the Government's self-imposed ceiling of 40% of national income.
That limit would be breached by about £5 billion if the tax cut was extended into future years - or even more if the economy failed to grow as strongly as the Treasury is predicting.
Shadow chancellor George Osborne said the IFS analysis had exposed the Government's compensation package as no more than a "cynical manoeuvre" to save Mr Brown's political skin.
"Here is independent evidence of Gordon Brown's compensation con on the 10p tax rate," he said.
8:44am Wednesday 21st May 2008
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