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Alistair Darling

Labour rebels have called off their revolt over the abolition of the 10p income tax rate after Alistair Darling promised to compensate poor households who will lose out from the change.

Former minister Frank Field said he was withdrawing a rebel amendment which had attracted the signatures of 45 Labour MPs and threatened Gordon Brown with his first Commons defeat as Prime Minister.

The move came after Mr Darling announced he would meet one of the rebels' key demands that compensation should be backdated to the start of this financial year, when the tax change comes into effect.

In a letter to the chairman of the Commons Treasury Select Committee, Mr Darling said that 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".

Mr Field said: "The Chancellor's statement this morning is to be welcomed. He is actively seeking ways of compensating workers made worse off by the loss of the 10p starting rate of tax, either by changing personal allowances and tax codes or by changes to tax credits.

"It is terrific news for our constituents who earn modest wages and salaries and for Labour MPs who have been actively supporting their campaign "The Government has listened, and more importantly acted upon what many Labour MPs have been saying, and I shall now be withdrawing the amendment to the Budget that stands in the name of nearly 50 Labour MPs."

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.

Some 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.

Copyright Press Association Ltd 2008, All Rights Reserved.

2:31pm Wednesday 23rd April 2008

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