AND NOW BROWN PLANS A CRUEL TAX RAID ON THE ELDERLY...

The tax bombshell is revealed in a report being published today by the highly respected Institute for Fiscal Studies.

The institute concluded that the tax cut would benefit millions of families this year – although around 900,000 of the lowest-paid would still be penalised by the changes.

But the Government is almost certain to “inflict losses next year on middle-income families”, warned the report, entitled The 10p Tax Rate: Where Next?

And by 2010, around 18 million families will be paying an average  £150 extra a year in income tax.

The Tories last night said the analysis confirmed that Labour’s tax retreat was a “cynical” gesture.

Shadow Chancellor George Osborne said: “Here is independent evidence of Gordon Brown’s compensation con on the 10p tax rate.

“This is what happens when short-term politics gets in the way of the long-term interests of the country.” Today’s report said the Government could only avoid penalising families next year by extending the one-off tax cut and continuing to top up the annual winter fuel allowance.

But those measures would cost the Treasury £5billion a year by 2010, the report said.

Institute director Robert Chote said: “By announcing a big one-off  increase in the personal income tax allowance, Alistair Darling has not only created millions of winners this year, he has created millions of potential losers next year.”

Mr Chote said he feared that the Treasury would be forced to borrow even more cash to sort out the problem in the future.

“On the evidence of its recent decisions, the Government may well be afraid to take their gains away from them,” he said.

“If public-sector borrowing ends up permanently higher as a result, it will further undermine the credibility of the Government management of the public finances and increase the probability of future tax increases or spending cuts, perhaps soon after the next general election.”

The report also said that six million people would this year still be worse off as a result of the 10p tax- band abolition.

However, their losses would be mitigated by benefits to other people in their household.

The report said: “These are people under 65 on incomes between £6,635 and £13,355, with the biggest loss of £112 a year at £7,755.

“But most of these individuals either live with a spouse or partner who gains more than they lose, or are fully compensated by increased benefits and tax credits.”

The institute also said that 900,000 still worse off this year would include:

• 500,000 childless single adults under 25;

• 140,000 childless couples both aged 25 to 55; and

• 115,000 childless single adults aged 25 to 55.

Those who lose out have an average income after taxes and benefits of £11,800, the report said.

More than two-thirds are in the poorest third of the population.

They lose an average £83 a year, with the poorer among them losing a larger proportion of their income.