Alistair Darling does not have a free hand. He is not being deliberately obtuse in declining to spell out how, and when, the losers from the abolition of the 10p tax band will be compensated. The Treasury does not have the money to produce a quick and simple solution. If one had been available, Mr Darling would have announced help in the Pre-Budget Report or the spring Budget.

When the abolition of the 10p band was announced in March last year, the implicit assumption was that the public finances had enough leeway to deal with any problems. But any such hopes rapidly disappeared with the credit crisis, and the problem now is how to contain the rise in public borrowing, not to inflate it.

Yet that constraint does not appear to be appreciated by many Labour MPs. In the discussions between Treasury ministers and backbench members, there has been a gap of comprehension. Ministers have asked Labour MPs: if you want to help this or that group of losers, it may cost so many hundred million pounds, or perhaps one or two billion pounds. Which tax would you raise, or which spending programme would you cut? Answer comes there none.

As all the analyses have shown, it is very hard to develop a compensation package in view of the diverse groups of losers. The Social Market Foundation (SMF) has produced a timely paper showing the difficulty of targeting losers cheaply with the existing mechanisms in the tax and benefit system. There is no blanket response. What might help younger workers would not assist younger women pensioners.

The best targeted package outlined by the SMF would cover 90 per cent of losers: combining an extension of working tax credit to childless people under 25, raising its value by £35 a week, and increasing winter fuel payments for women aged 60 to 64, targeted on those on low incomes. But the cost would be an impossible £7.5 billion a year. There is a range of smaller options, coming down to a more realistic £500 million to £1 billion package, covering pensioners, as described above, and with a smaller rise in tax credit for single, childless people and a gesture to low-paid young workers. The coverage would be 15 to 20 per cent.

These constraints explain why Mr Darling has focused first on helping 60 to 64-year-old women, partly because their incomes do not change much and they can be targeted through the same mechanism as the winter fuel payment. It will take until this autumn’s PreBudget Report to finalise arrangements for all the others.

Mr Darling has been careful to say that average losses from the abolition of the 10p band will be offset this year. This implies a one-off payment to the losers rather than backdating permanent help. These complexities explain why it will be so hard for Labour MPs to reassure worried voters and party activists. They cannot even say “the cheque is in the post”. The issue may have been defused at Westminster, but it is likely to remain very damaging in the May 1 elections.

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