'18 million will lose out' in tax changes

AN ESTIMATED 18 million families stand to lose out by about £150 a year unless the Chancellor, Alistair Darling, can find a way to extend his one-off tax cut announced in last week's "mini budget", independent researchers warned yesterday.

The Chancellor's 2.7 billion emergency package to raise tax thresholds was designed to compensate the 5.3 million households who lost out as a result of the scrapping of the 10p tax rate.

Some 22 million people on low and middle incomes will gain from the changes, which have been backdated to the start of the tax year on 6 April.

But the Institute for Fiscal Studies has now calculated that by 2010/11, 18 million of those families will be worse off by an average of 150 a year, compared with now, unless the changes – together with the top-ups to the winter fuel allowance – are extended.

With political pressure to avoid unpopular tax rises ahead of a general election, the IFS said the government may be tempted to increase borrowing – even if it means breaching its own tax-and-spending rules – rather than reverse the changes.

The IFS director, Robert Chote, warned that taxpayers could be left to pay the price after the next general election.

"By announcing a big, one-off increase in the personal income tax allowance, Alastair Darling has not only created millions of winners this year, he has created millions of potential losers next year," he said.