Chancellor faces 10p tax grilling

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The Treasury select committee launched an inquiry in April into the effect of scrapping the 10p rate, as Mr Darling faced threats of a backbench rebellion on the issue which could have blocked his Budget.

He bought off the rebels with a surprise "mini-budget" on May 13, which delivered a £120 boost to 22 million families through changes in tax thresholds, but still left some 1.1 million low-income taxpayers worse off.

Mr Darling's move was not enough to restore Labour's fortunes in the Crewe and Nantwich by-election the following week, where the fallout from the 10p tax decision was widely blamed for the loss of a formerly safe seat to the Conservatives.

The abolition of the 10p rate was first announced in Gordon Brown's final Budget as Chancellor in 2007, but did not come into effect until this year, when it dealt a massive blow to his popularity as Prime Minister.

The cross-party Treasury committee, chaired by senior Labour backbencher John McFall, is conducting a brief inquiry into "the effects of the abolition of the 10 pence rate of income tax and measures that might be taken arising from that abolition in the broader context of the tax, tax credits and benefits systems" and is expected to report within weeks.