Gwyneth Dunwoody's final service to the Labour Party has been in death rather than life. It is hard to believe Alistair Darling would have made the statement he did on the 10p tax rate yesterday if it were not for fear of massive defeat in the Crewe & Nantwich by-election. Only days ago the Prime Minister and the Chancellor were insisting that it would be impossible to provide relief for those on low incomes hurt by the 2007 Budget before the Pre-Budget Report in November or December. The impossible has become entirely practical. It is a change of considerable proportions and one that is borne not of political strength but fundamental weakness.

On the substance of the shift, Mr Darling has probably made the correct decision. Less than 48 hours after Gordon Brown delivered his last Budget as Chancellor in March 2007, this newspaper noted that the changes would hit many of the poorest in the workforce, that this was a perverse course of action for a Labour Government to adopt and that he would have to amend the personal allowances structure if he were to compensate those who needed assistance.

The mechanism set out yesterday is a means to that end. By raising personal allowances in a manner that targets those on lower and medium incomes, the Chancellor should, as he declared, be able to ensure that 80 per cent of those who would have been put at a loss will no longer be so and that the remaining 20 per cent will have their financial disadvantage slashed in half. It is difficult to envisage a simpler way to address this question and any proposal that would have meant 100 per cent coverage for all of the people affected would have been far more expensive.

This is still, however, a costly package in more ways than one. Even this formula comes with a £2.7 billion price tag, scarcely an irrelevant amount of money. It is the approximate equivalent of reducing the basic rate of income tax by 1p in the pound. In ordinary circumstances, it would have had to be paid for elsewhere. Mr Darling might have sought to offset to do this either by tax increases in other spheres or by cutting back spending. He has calculated instead that the first option would send taxpayers into a rage while the second would have him metaphorically strung up by the Labour Party. So it is to be financed by extra borrowing, even though present credit levels are threatening to torpedo the Treasury's fiscal rules and a slowing economy will render those numbers yet worse soon. This is manifestly a short-term fix. When the Pre-Budget Report comes, the Government will have to choose between higher taxes, reduced expenditure or abandoning any pretence of following its fiscal rules. When that time arrives, it should choose to reduce spending.

The broader damage, though, is to the reputation of this administration. This is a Government that asserted that it did not wish to nationalise Northern Rock but then after months of anguish, did so. It is a Government that produced a Pre-Budget Report in October with unwelcome plans relating to capital gains tax and non-dom residents and has since had to scale back those provisions. It has now overturned a key section of the 2007 Budget after a year of insisting that there was absolutely no need to do so. Margaret Thatcher memorably asserted: “You turn if you want to. The Lady's not for turning.” For Mr Brown and Mr Darling, disconcertingly, U-turning on vital planks of economic policy is becoming a habit.