Leading article: A calculated tax ploy that mutated into a monster

When the then Chancellor announced a 2 pence reduction in the basic rate of income tax at the end of his 2007 Budget speech, he delighted his home benches, floored the Opposition and was hailed once more as the Whitehall wizard of number-crunching. Little can he have imagined then how viciously his master-stroke would come back to bite him. A year later, and now Prime Minister, Gordon Brown is fighting enemies to the right and left of him in a battle that is entirely of his own making.

The basic-rate cut was to be paid for, at least in part, by the abolition of the 10 per cent rate. The majority would benefit, if only marginally. A minority, though – as it turns out, a not insignificant 5 million or so – stands to lose, and they include some of the least well-off individuals in the country. They earn less than £18,000 a year. They are, by virtue of their age, childlessness or part-time hours, not eligible for any of Mr Brown's elaborate tax credits. They also tend to be those who have benefited least from Mr Brown's otherwise laudable determination to reduce child poverty.

As the Government's ill-luck would have it, their plight directly undermines at least two of the messages that Mr Brown has tried to drive home to voters since he became Prime Minister. The first is that working, even for a low wage, should pay. The second is that New Labour, even as it encourages enterprise and approves of financial rewards for success, is still Labour at heart, and has a responsibility to the less well-off.

Now, MPs who had hoped that policy would move leftward under Gordon Brown feel betrayed. Even some of those fully committed to the Blairite project clearly feel uneasy – as well they might – about tax changes that have the effect of penalising poorer workers. Meanwhile, what many people, and not only those affected, see as a violation of elementary fairness has handed another gift to the Opposition.

In many ways, the story of the tax cut offers a microcosm of what has gone wrong with Mr Brown's tenure so far as Prime Minister. Conceived as a coup de théatre to crown his final budget as Chancellor, the tax changes appear not to have been fully thought through. Now that the consequences have become clear, the response has been late and sorely lacking in political finesse. David Miliband, once – and future? – rival to Mr Brown for the party leadership, made a public call for party unity yesterday, while unsubtly identifying where improvements could be made.

For the Government, the timing of this storm, with council elections less than two weeks away, could scarcely be worse, not least because many of those affected will be traditional Labour supporters. At the same time, the clamour for something – anything – to be done to offset the malign effects of abolishing the 10 per cent band only augments the growing sense of distance between Mr Brown, his ministers and the voters.

Dissent among MPs seriously broke to the surface when Mr Brown was in the US and the Chancellor, Alistair Darling, was in China. It came hard on the heels of disclosures about MPs' expenses. And while it is not Yvette Cooper's fault that she was moved to the Treasury just in time to defend the Government's case, it is hard to forget – as she asks us to view the tax penalty in the broader context – that she and her husband have arranged their tax affairs to maximum advantage.

Mr Miliband is right that the Government needs, as he put it, "to see the world through the voters' eyes". Regrettably, there was nothing in the waffled explanations offered by the Chancellor yesterday to suggest that either he, or the Prime Minister, fully appreciates the gravity of their predicament.

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