Labour fends off fresh rebellion over 10p tax

The Government avoided a humiliating defeat last night over Gordon Brown's controversial decision to abolish the 10p starting rate of income tax.

Ministers beat off a Labour backbench attempt to compensate all the losers from the move, which was included in Mr Brown's last Budget as Chancellor in 2007.

Labour whips were so worried about the prospect of an embarrassing defeat for Mr Brown that ministers were ordered to cancel foreign trips so they could vote. A rebel amendment to the Finance Bill, which implements this year's Budget, was defeated by 311 votes to 268, with the Government's majority of 63 cut to 43.

The revolt was led by Frank Field, the former Welfare Reform minister, and Greg Pope, a former Labour whip.

Although 30 Labour MPs signed their amendment – potentially enough to defeat the Government – only 15, including Frank Field who tabled the amendment, voted for it after ministers claimed that it would cause "chaos" by preventing the collection of taxes.

Other critics of the 10p tax decision said privately that they did not want to weaken Mr Brown after recent Commons defeats over pension rights for Gurkhas and MPs' expenses. Mr Field warned the Government that it was playing for "very, very high stakes" and that it had to offer more than just "warm words".

He told the Commons that half a million of the country's poorest households were still losing out by about £2-£3 a week, adding: "The golden thread that knits us all together [in Labour] is that we came into this place not only to protect but to advance the interests of those who get the least from life.

"The 10p is a denial of all that we have come into public life about, and this is our last chance before the general election to rectify it."

Stephen Timms, the Treasury minister, offered to hold talks with the Labour rebels to see whether more help could be given to the losers but declined to make specific proposals. He insisted the Government had fully compensated 90 per cent of the five million people who originally lost out.

He said that the amendment would leave the Government unable to collect income tax this year and that it would have to repay that which it had already collected. "The chaos doesn't bear thinking about," he said. "Blocking income tax isn't the answer."

Mr Timms said that the average loss to those households who were still worse off was less than £1 a week.