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The leaders of Labour's 10p tax rebels yesterday served warning on the chancellor, Alistair Darling, that he has to find at least £1bn in Monday's pre-budget report to help the 6 million people who have still not been compensated for the disastrous decision to abolish the lower tax rate earlier this year.
Frank Field and Greg Pope, the leaders of the tax rebellion earlier this year, have written to Darling, urging action. Field told the Guardian: "The Labour backbenches will not abandon the poor who have still not been compensated. It is a Rubicon they will not cross, and at a time the government has found £50bn to bail out the bankers, the Treasury can surely find £1bn to ease the resentment of our core voters."
The chancellor is expected to announce a series of business and personal tax cuts in Monday's pre-budget report, aimed at the poorest because they are most likely to spend any extra cash.
The intervention of Field and Pope will add to the pressure on the Treasury which was last night seeking to dampen speculation of a massive tax giveaway next week after the latest official figures showed a backdrop of rapidly deteriorating public finances.
In the wake of the first October deficit in 14 years, officials dismissed suggestions that the chancellor could unveil a £30bn package - worth 2% of GDP - designed to lift the economy out of recession.
The quarterly payment of corporation tax means October is normally a surplus month for the public finances, but the slowdown in the economy, the collapse of the housing market, financial turmoil and tax concessions since the budget combined to leave the state in the red by £1.4bn last month.
City analysts said the budget deficit could rise to £70bn this year and top £100bn in 2009-10 even before the extra borrowing for Monday's fiscal package was taken into account.
In their letter Field and Pope write: "We are anxious that the government's promise to do all in its power to compensate fully the losers from the abolition of the 10p rate is not only met, but kept clearly separate from other tax reductions the government may announce next Monday."
Following an unprecedented backbench rebellion, and amid signs that Brown's leadership was at risk, the Treasury hastily assembled a £2.7bn compensation package in May. Darling increased personal allowances for all basic rate taxpayers. Although only 1.1 million householders have lost out overall, this masks the fact that 6 million individuals have been losers.
Field and Pope write: "Overwhelmingly these taxpayers are on low earnings. The Institute of Fiscal Studies estimates that the greatest loss of around £112 a year are for taxpayers earning £7,755."
They accept that the complexity of the tax system means it will be impossible for the Treasury to help every group that has lost, but argue it does seem likely that most of these losers are on low earnings and fall below a threshold of £13,355 a year.
"We do hope you can give us an assurance that Monday's statement will include a measure that will recompense as many of these individuals as is practically possible. Only in this way would it be possible to draw a clear line under this wholly sorry saga."
Field claims the net cost of his proposal will be £1bn.
In other developments the employment minister, Tony McNulty, said the pre-budget report would propose a new employment programme, adding it was "a no-brainer" to revisit the closure programme for Jobcentre Plus officers. Since 2002, the government has closed nearly 500 job centres, including 40 in the last year, and cut staff by 16,000.
Ministers are also under intense pressure to use the pre-budget report to rethink its housebuilding programme after figures were released yesterday showing only an estimated 22,200 housing starts in England in the September quarter, down 33% on the previous quarter.
This decline in housebuilding levels makes the government's target of building 240,000 homes a year by 2016 look hopelessly unrealistic.
- Tax and spending
- Alistair Darling
- Economics
- Credit crunch
- Economic policy
- Labour
- Pre-budget report 2008
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