Labour MPs are in open revolt against Gordon Brown over his decision to raise the taxes of low-paid workers by scrapping the 10p starting rate of income tax.
Twenty-six Labour backbenchers have signed a hard-hitting Commons motion calling for the move to be reversed. It formed part of Mr Brown's final Budget last year but takes effect at the start of the new financial year on Sunday.
The motion, tabled by the former government whip Greg Pope, warns: "Despite assurances to the contrary, many people are being made worse off by the abolition of the 10p tax rate. This is having a disproportionate impact on people who can ill afford to be made worse off."
Although the MPs admitted this was not the Government's intention, they said they were "dismayed at the response to the plight of those adversely affected" and urged the Chancellor, Alistair Darling, to correct "this damaging change to the taxation system". Organisers of the rebellion predict they will win the backing of more than 100 Labour members – more than enough to defeat the Prime Minister when the Finance Bill, which implements the decision, comes before the Commons. This could force ministers into concessions.
More than five million people, mainly earning less than £18,000 a year, will lose out under the change, which accompanied Mr Brown's headline-grabbing cut in the basic rate of income tax from 22p to 20p in the pound. Ministers insist that many of the losers will be protected by changes to tax credits, but Labour MPs fear a backlash from constituents.
Nia Griffith, a parliamentary private secretary who challenged Mr Brown on the issue at a meeting of Labour MPs on Monday, said she was concerned. "We should have woken up to it sooner, and it would have been easier to do something about it earlier on."
Mr Brown defended the decision at the meeting but his words failed to satisfy many MPs and they launched the round-robin protest on Wednesday.
Jane Kennedy, a Treasury minister, said tax changes since 1997 had left people in all income groups better off. The new 20p rate would be the lowest for decades.
The Tories claimed the Government was in disarray. They also seized on a call by Gerry Sutcliffe, the minister responsible for licensing, for the Treasury to avoid a further hike in duty on alcohol in future Budgets. Mr Sutcliffe told the pub trade newspaper the Morning Advertiser that the industry was "right to be upset" about Mr Darling's decision to raise duty by 2 per cent above inflation in each of the next four years. "We, and I speak as a champion of the pub trade, want the Chancellor to change his mind," he said.
Later the minister appeared to change his mind, saying: "I fully support the tax measures in the Budget, and the Chancellor's decisions on tax. Alcohol duty increases will go towards helping some of the poorest members of society."
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