Alastair Darling has sought to defuse the 10p tax row, but at considerable expense to the public finances. Facing a difficult by-election in Crewe and Nantwich, and a revolt by Labour backbenchers which could have derailed the Finance Bill, Darling decided to raise personal allowances by £600. Higher rate taxpayers will not benefit because of an adjustment to the threshhold.
The move will cost £2.7bn and will not help all those who lost out by the abolition of the 10p rate. The package still leaves 1.1 million people who earn between £6,635 and £13,355 worse off. These include childless workers who are under 25 or work less than 30 hours and some female pensioners under 65. Moreover, people earning between £19,000 and £40,000 have already gained from tax changes and now will get more.
The money to pay for the package is to be borrowed which will put the 40 per cent debt rule under further pressure. The deal is for one year only and difficult decisions will have to be made later in the year about how to recover the money. It is not easy to see where additional tax revenues can be raised.