Tax package 'may break debt rule'

My Account
Logout

Create an Evening Standard Account

Use your social network

Save time by using your existing account to sign in to Evening Standard

We'll never share your information or post anything to your account without your permission

Welcome! Sign in here

Use your social network

Save time by using your existing account to sign in to Evening Standard

We'll never share your information or post anything to your account without your permission

Forgot your password ?

Registration

* indicates fields that are mandatory

Email *

Password *

Confirm Password *

First name *

Surname *

Postcode *

Country *

Mobile phone number

Username *

Gender *

Year of birth *

When you sign up...

You will have access to all our online competitions, discounted offers and can post comments on our site.

You will also receive The Weekender newsletter sent every Thursday - it’s full of fantastic offers and ideas for the weekend. You can update your email preferences in your account page when you log in.

Other newsletters and emails

Homes & Property Newsletter - Yes I want to receive the weekly email with all the latest news on property in the capital

Occasionally we would also like to send you relevant emails detailing specific offers either from ourselves or carefully selected partners. If you would prefer not to receive these then please tick the appropriate boxes below. We will never pass on your details.

I do not want to receive additional offers and information from the Evening Standard

I do not want to receive additional offers and information sent by Evening Standard on behalf of carefully selected partners

Terms and Conditions

* I have read, understood and agree to be bound by the terms and conditions of Evening Standard

Registration

Mail Sent for Registration Confirmation.

A confirmation email has been sent. Please activate your account by clicking on the activation link sent in your mail box.

Some commentators suggested that the extra borrowing to fund increases in personal tax allowances could force the Chancellor to breach his own fiscal rule that national debt should stay below 40% of GDP.

And others calculated that the bulk of the money promised by Mr Darling would 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.

There was also uncertainty over whether the adjustments to tax allowances announced on Tuesday will be carried over into future years - something Mr Darling said would be clarified in the Pre-Budget Report in November.

Francesca Lagerberg, head of Grant Thornton's national tax office, said: "While the Chancellor's plan offers a solution to the political problem it does not offer full compensation to those worst hit by the abolition of the 10p rate, as there are still some who will spend the 2008/09 tax year worse off.

"Furthermore, and rubbing further salt into the wound of those low income earners who have not been helped by (this) announcement, is the fact that a large number of middle-income earners will benefit from the raising of the personal allowance by £120 as well."

Treasury officials declined to speculate on whether the Chancellor's extra borrowing would tip the Government into breaching the sustainable investment rule introduced by his predecessor Gordon Brown, insisting that such assessments are made only in the PBR and Budget.

The Institute for Fiscal Studies put the chances of breaching the rule at 50/50, while Jonathan Loynes, of Capital Economics, told the Daily Telegraph: "If the economy slows as sharply as we expect... borrowing will rise much more sharply and the fiscal rules will be comprehensively broken."