Darling denies 2.7billion cost of 10p tax U-turn puts at risk Government's spending plan

The Chancellor today denied borrowing £2.7billion to compensate for the Government's 10p tax U-turn had put its own spending rules at risk.

Alistair Darling was forced to defend the 'mini-budget' when he appeared to give evidence before the Commons Treasury Committee.

He insisted borrowing to compensate the millions losing out from the decision to abolish the 10p tax rate was the right approach.

It would have been a mistake to have taken money out of the economy just as it was slowing down, he told MPs.

And he insisted he could still meet the Government's self-imposed fiscal rules which require public sector borrowing to be held below 40 per cent of national income.

The decision to abolish the tax rate, announced last year in Gordon Brown's last budget as Chancellor, outraged MPs and escalated into a full-scale row.

It was only when Mr Darling appeared in the Commons to announce almost every single loser from the measure would be compensated that the rebellion died down.

Today,  he insisted the decision to borrow almost £3billion to cover the payout was not too risky.

'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.'

Mr Darling rejected a warning by the Organisation for Economic Co-operation and Development, in a report earlier today, that he was putting the fiscal rules at risk.

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

He said the OECD report had acknowledged the underlying strength of the British economy at a time of international financial turbulence.

'It recognises that whilst, like every other country, we are facing very turbulent times, it remarks on the resilience of our economy which I think is a tribute to what we have been able to do over the last ten years,' he said.

The Chancellor also acknowledged that although four million people to lose out from the tax cut had been compensated, there were still one million who had not.

He promised he would be looking to help them through the Pre-Budget Report in the autumn.

'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.