Budget could be blocked by group of rebel Labour MPs

Gordon Brown is facing a new backbench revolt over his decision to scrap the 10p bottom rate of income tax as Labour MPs threaten to block this year's entire Budget.

A dozen Labour MPs have backed an amendment to the Finance Bill, which includes the measures in the April Budget, saying they cannot take effect until there is full compensation for all 3.5 million people who lost out when the 10p in the pound rate was abolished last year.

Although a previous rebellion was headed off when the Government announced a compensation package last year, its leaders now regret their decision to back down because 500,000 low income households will be left worse off permanently. They are planning "one last push" to win full redress for the losers when the Bill is debated in the Commons next week.

The revolt could pose another threat to Mr Brown's authority. The decision on 10p tax was included in his last Budget as Chancellor in 2007, when he also cut the basic rate of tax from 22p to 20p in the pound. The 10p move returned to haunt him and Tories branded the package "a tax con, not a tax cut."

Labour rebels are confident of winning cross-party support. If they do, they would require 32 Labour MPs to vote against the Government to ensure full compensation or scupper the Budget. Earlier this year, 42 of them signed a Commons motion demanding help for all those who lost out.

The Chancellor, Alistair Darling, is likely to resist the call because of the parlous state of the public finances. He has already made permanent the changes to tax allowances which will reduce the number left worse off from 1.1 million households at present to 500,000 by 2011-12.

Frank Field, who has tabled the amendment with former Labour whip Greg Pope, told The Independent: "If enough Labour members show resolve, then all the 3.5 million losers from the 10p decision will at last get justice. Most of them are Labour voters; 3.5 million people is half the Labour vote at the 2005 election. So MPs can vote to save their seats."

Mr Field said he was wrong to accept assurances from the Government last year that the problem would be sorted out: "The time for warm words is over; I shan't fall for that trick again."