10p tax U-turn a charade - Clegg

Liberal Democrat leader Nick Clegg branded the £2.7bn compensation package a "complete charade" and insisted the Government was "pretending" to have solved the problem.

Meanwhile, David Cameron told Mr Brown: "Yesterday we all paid £2.7 billion to keep you in your job."

The fierce exchanges in the Commons came as economics experts suggested extra borrowing to fund the increases in personal tax allowances could force the Government to breach its own fiscal rule that national debt should stay below 40% of gross domestic product (GDP).

Others have calculated that the bulk of the money promised by Mr Darling will not go to the low-paid workers worst-hit by the loss of the 10p rate, but to middle-income earners.

Raising the threshold for the 20p basic rate of income tax by £600 will provide a £120 boost this year for all 22 million taxpayers earning up to £40,835 - including 17 million people untouched by the abolition of the 10p rate.

But the payout will not be enough fully to compensate some 1.1 million of the lowest-paid workers, earning around £6,500 to £13,000, whose losses were estimated at up to £230. The move appears to have defused a Labour rebellion that threatened to send Mr Brown's premiership into a tailspin.

But Mr Clegg challenged the Labour benches: "How can they all ignore the fact that even after yesterday's announcement over a million of the poorest people in this country are still worse off. Don't they matter?"

Mr Brown said he was surprised at Mr Clegg's response when the party's deputy leader Vince Cable had "welcomed" the announcement on Tuesday.

"The reason he did is that 22 million people are better off. We have taken 600,000 children out of poverty, another 300,000 are to be taken out of poverty, and a million pensioners have been taken out of poverty."