City AM: Darling left reeling after Black Tuesday

ALISTAIR DARLING was yesterday forced into a humiliating climb-down over his plans to abolish a tax break for the lowerpaid, on a day when he suffered a series of blows to his reputation.

In a bid to defuse anger over the abolition of the 10p tax rate ahead of a key by-election, Darling put up the personal tax allowance by £600 — meaning anyone earning up to £40,835 will gain £120 this year — the measure is officially for one year only. Higher rate taxpayers will not benefit.

Darling’s U-turn on personal tax, equivalent to a tax cut of £2.7bn, will push public sector debt to 44 per cent of GDP in 2009, smashing the government’s fiscal rule, research house Capital Economics said. The emergency statement to Parliament coincided with figures showing inflation jumping from 2.5 per cent to 3 per cent in April on the consumer price index (CPI) measure.

The more established retail price index (RPI) measure surged from 3.8 per cent to 4.2 per cent, led by food and oil prices. This reduces the chances of an early interest rate cut.

The bad news on inflation was accompanied by figures showing that mortgage lending has slumped to its lowest level for more than three decades. In yet another knock, housing minister Caroline Flint accidentally left in photographers’ view a government report conceding that house prices would fall by 5 to 10 per cent “at best” this year.

Darling is also facing another possible U-turn on corporate tax as the number of UK companies quitting the UK grows. Matthew Elliott, of action group the TaxPayers’ Alliance, said: “This is Darling’s very own Black Tuesday.”

George Osborne, Tory shadow chancellor, said: “This is a panic emergency budget from a divided, dithering and disintegrating government that has completely lost control of events.”