MPs warn over loss of 10p tax rate

The abolition of the 10p rate of income tax will mainly hit low-income households, MPs have said.

The change, which was announced by Gordon Brown in his last Budget as chancellor last year, came into effect on Sunday.

The move is reported to have been causing unrest among Labour MPs concerned over its impact on workers on low wages.

The Commons Treasury committee's report into the 2008 Budget said the main losers from the abolition of the 10p rate would be those below the age of 65 with an income under £18,500, in childless households.

This group seemed "an unreasonable target for raising additional tax revenues to fund the benefits of tax simplification and meeting the needs of children in poverty," the report said.

The committee also raised concerns over the poor take-up of working tax credit among eligible families without children, a benefit intended to mitigate the loss of the 10p rate.

Chairman John McFall said: "While tax simplification is a laudable aim, it seems strange that the abolition of the 10 pence starting rate of income tax disadvantages mainly low income households.

"As such, the government must ensure that the people are identified, and appropriate help given to them to ensure they receive the benefits to which they are entitled."

Shadow chancellor George Osborne said a "revolt" was developing in the Labour Party.

"Last week Gordon Brown was heckled at the rowdy parliamentary Labour Party meeting about his doubling of the 10 pence tax rate, and 30 Labour MPs signed a motion against the rise.

"Now the Labour-dominated Treasury select committee has launched a stinging attack [on the move]."

The committee's report also concluded that the Treasury growth forecasts underpinning the Budget are "more optimistic" than the average of independent forecasts.

McFall said: "The government is going to have to be extremely vigilant in how it manages the public finances if it wishes to maintain its so far clean record in meeting its own fiscal rules."

On another high-profile Budget move, the changes for non-domiciled taxpayers, the committee said "almost no notice" had been paid to how low and middle income non-doms would be affected.