Darling defends 10p tax move

The chancellor has defended his £2.7bn compensation package for people who lost out as a result of the abolition of the 10p tax band.

Appearing before the Commons Treasury committee, Alistair Darling said that he had not risked breaching the government's fiscal rules.

He told MPs that he borrowed the money to avoid taking it out of the economy during the current slowdown.

The chancellor acknowledged that there were one million people who had not been fully compensated following the scrapping of the lowest rate of income tax.

But he claimed that four million people had now been compensated and pledged to use the pre-Budget report to help those affected.

"There are people we still want to do more to help and we will do that in the context of the pre-Budget report," he said.

Darling also insisted that he would not break the government's spending regulations in borrowing the money, which require public sector borrowing to be held below 40 per cent of national income.

"I think it would have been wrong at this stage to have taken that money out of the economy by, for example, compensatory tax increases elsewhere," he said.

"I believe that I can do that staying within the fiscal rules and I believe that that was the right way to do that for this year."

Darling rejected the findings of a report from the Organisation for Economic Co-operation and Development, which said he was at risk of breaking the fiscal rules.

"I don't accept that we are putting the rules at risk," he said.

He said the report recognises that "we are facing very turbulent times" but also "remarks on the resilience of our economy which I think is a tribute to what we have been able to do over the last 10 years".