£1bn package would end tax row, say rebels

The architect of Labour's 10p tax rebellion said yesterday that ministers must provide up to £1bn in compensation for those affected by the changes before the local elections next week, if they are to defuse the row.

Insisting he did not want to bring the government to its knees, the former minister for welfare reform Frank Field said the Treasury had £1.2bn in unclaimed working tax credits with which it could fund the package, a move that would take the sting out of the issue for voters.

Admitting he was in a cat and mouse game with the government, Field said: "No one in the right mind wants to vote against the government, but this is in a different category to anything we have faced over the past 11 years in that the golden thread that ties us together is to protect the poorest.

"I feel sick when I vote against the government, but I think it is very important that the low-paid know we are going to deliver."

He added: "We have got local elections and we have got to get back on the front foot by saying this was an error. We all in our personal lives make errors, and we make them as organisations, but the crucial distinction is, do we deny it, or do we acknowledge them? We need to send a clear message to low-income voters that they are going to be recompensed this year for the increased taxes they paid."

Field made his remarks in a Guardian interview after Alistair Darling tried to appease more than 60 rebels at a meeting in Westminster yesterday lunchtime.

Flanked by the chief whip, Geoff Hoon, the chancellor told MPs he would try to put together proposals to help those hit by the 10p tax abolition before the end of this financial year, but he did not say whether the measures could be backdated - a key demand of the rebels.

At present the government is facing defeat next Monday unless it offers more detail on how it will offer compensation. Yesterday the Labour controlled Treasury select committee also announced it will hold an urgent inquiry into those damaged by the 10p rate changes, adding it would report by July.

John McFall, the Treasury committee chairman, indicated the government could deploy unclaimed tax credits to fund a package.

Field has gathered 39 Labour backbench signatures for his motion calling for a compensation package, enough to defeat the government if all the opposition parties support his amendment, due to be debated next Monday.

Among the supporters of the Field amendment are many normally loyal backbenchers including Greg Pope, George Howarth, John Battle, Janet Anderson, Karen Buck and Fabian Hamilton. There are also another dozen left-wingers who have so far not backed the amendment.

Buck, one of the MPs who met Darling yesterday, said: "I believe the government has made a serious mistake... I welcome the acknowledgement of error that we have seen in the past two days, but this is still an unfolding work in progress."

Field told the Guardian that any measures announced now would be interim ones, and that a review being conducted by Darling and Yvette Cooper would need to look at longer term solutions.

"Most estimates suggest the losses on average are £2 a week, but let's say it is £4 a week, so that means the government needs to find between £500m and £1bn, since at most there are 5 million losers," he said. "There is unclaimed £1.2bn in working tax credit, and Brown set up that credit specifically to help workers on lowish incomes. Why can't those monies be used to finance the compensation package for this year?"

The Tories rushed out a local election leaflet setting out "how much will you be hit by Gordon Brown's tax on hard-pressed families". It claims one in five families will be worse off, by up to £464.