Government faces Finance Bill challenge

MPs have begun debating government reforms to income tax and vehicle duty.

The Commons resumed its consideration of the remaining stages of the Finance Bill on Tuesday, with the legislation which brings the government's tax proposals from the 2008 Budget into law, set to conclude its progress on Wednesday.

David Taylor, Labour MP for Leicestershire North West, is thought to have the backing of more than 15 MPs for an amendment demanding the chancellor compensate the 1.1 million people left out of Treasury plans to alleviate the impact on those who lost out from the abolition of the 10p rate of income tax.

Fellow Labour MP Lynne Jones has tabled another amendment, which would give individuals the choice of opting in or out of the 10p rate - allowing anyone put at a disadvantage by the change to stick with the old rates.

Former environment secretary Michael Meacher has separately tabled an early day motion on the 10p tax issue.

Chancellor Alistair Darling came under the fire over the weekend when the Commons Treasury committee said the £2.7bn package designed to mitigate the loss of the 10p rate should not be a one-off gesture.

It said that £2bn of the extra money went to middle-income workers who did not lose out from the 10p change, while 1.1 million of those worst affected continue to be out of pocket.

Opposition is also expected to the government's plan to raise taxes on high-emission cars.

Conservative Treasury spokesman Justine Greening has tabled an amendment to the Bill which will force the government to drop plans to backdate the tax to 2001.

Critics argue the move is unfair on those on low incomes who cannot afford to upgrade their cars before the law changes in 2010.

Taylor said his plan would introduce a taper mechanism into the £600 increase in personal allowances for income tax offered by the chancellor's package.

He said his amendment was "concise and precise" in compensating all of those who lost out from the 10p rate abolition.

"It's about £66m, this is the stuff that is down the back of the chancellor's settee at budget time. It's 100th of one per cent of his tax take, so the amount is minor but the principle is important," he said of the cost.

Taylor added that he will only drop his challenge to the Bill if the government is explicit that it will compensate all of the losers, having only pledged to come back with further plans in the pre-Budget report.

However Downing Street indicated on Tuesday morning that no further changes were planned to income tax arrangements for this financial year.

Treasury minister Jane Kennedy said "concrete" proposals, "implementable as soon as possible" would be brought forward by the time of the autumn statement.

Shadow chief secretary to the Treasury Philip Hammond said the Conservatives would put forward their own amendment to "force the government to come back to Parliament with a full report on proposals" to help the losers.

Liberal Democrat spokesman Vince Cable told the BBC that: "I find it difficult to see how they could now, in retrospect, get a simple coherent package to sweep everyone up. It would be nice if they could but I doubt that it's practical."