Darling sets out 10p plan

The chancellor has announced that personal tax allowances are to rise by £600 this year to compensate losers from the scrapping of the 10p income tax rate.

Alistair Darling told MPs on Tuesday afternoon that the change would cost £2.7bn, and would be mainly funded through borrowing.

"This will mean that 22 million people on low and middle incomes will gain an additional £120 this year," he said.

The move will be backdated to last month, when the loss of the 10p rate came into effect.

The government had promised to compensate those affected, but had come under pressure from backbench Labour MPs to be more explicit about the package before the Finance Bill returns to the House.

In his Commons statement, Darling said a rebate scheme would be too complex and expensive to administer.

Instead, he argued, raising the individual personal tax allowance to £6,035 would benefit all basic tax rate payers under 65.

Darling said that 4.2 million households would receive as much, or more than, they lost, while the remaining 1.1 million households would see their loss at least halved.

"In other words, 80 per cent of households are fully compensated with the remaining 20 per cent compensated by at least half," he said.

The plans were discussed at Tuesday's weekly cabinet meeting.

Full details will not be announced until this year's pre-Budget report in the autumn.

Darling has already promised to look at using increases to tax credits, winter fuel payments and the minimum wage to help  pensioners and childless workers.

He has also insisted he will "do more" in next year's Budget for low earners.

Frank Field, the former welfare minister who campaigned for more to be done to help those affected by the change, apologised for his recent attacks on the prime minister.

He said he had "allowed my campaign to become personal", something he regretted.

Darling said it was "not every day" that members had the courage to apologise and that it was "appreciated".