Gordon Brown today admitted that he had made "mistakes" in his last budget as Chancellor by failing to protect low-paid workers and pensioners when he abolished the 10p income tax rate.

In his frankest comments yet over the political row, designed to ease criticism of the Government in the run-up to tomorrow's crucial local and London mayoral polls, the Prime Minister claimed the errors had now been corrected by policy changes, and poorer people would benefit.

The row over the decision to scrap the rate had caused a furious political row, with Labour backbenchers threatening a mass-rebellion earlier this month which could have handed the Prime Minister his first House of Commons defeat.

Last week, Mr Brown was forced to promise urgent changes to the system to head off the row, as activists reported that the issue had dominated doorstep discussions with voters during election campaigning.

Speaking to BBC Radio 4's Today programme, the Prime Minister insisted the overall policy was right, but admitted that the measures he proposed had not covered "as well as we should have" the income on OAPs and low-income workers.

"I’ll be honest about it, we made two mistakes: we didn’t cover as well as we should have that group of low-paid workers and low-income people who don’t get the working tax credit; and we weren’t able to help the 60-64 year olds who don’t get pensioners’ tax allowance," Mr Brown said.

"That is now being dealt with in the measures Alistair Darling is proposing to examine over the next few weeks and overall poorer people benefit from this Budget."

He went on: "Overall the Budget is giving more money to low-income families; overall as a result of the latest Budget we are doing even more; and overall in 10 years we’ve taken a million pensioners out of poverty and we’re about to take a million children out of poverty.

"You’ve also got to remember the economic context. In 2007 the economic context was that people’s standards of living were rising."

Mr Brown attempted to deflect blame for deepening economic problems on financial conditions in America, and the risk-taking and reckless behaviour of banks in the City.

"Now we’ve got the fuel price rises, now we’ve got food price rises, not we’ve got the uncertainty. All of that has come out of America...and the context in which we are having to make decisions now is quite different," he said.

Backing Mervyn King, the Bank of England Governor, who said yesterday that the City and its bonus culture was to blame for the credit crunch and called for an end to excessive pay packages, the Prime Minister said: "We’ve had excessive risk taking and at the same time we’ve now got risk aversion.

"The real problem is that because there was a lack of disclosure, because there was all these off-balance-sheet activities nobody quite knew what was happening.

"It was wrong to have off-balance sheet activities and it’s right that all these losses be declared. The quicker that is done the better for the financial system."

The Prime Minister and Tory leader David Cameron will later go head to head for the backing of British business when they address the Institute of Directors within hours of each other today.

They are also set for another bitter confrontation at Prime Minister’s Questions in the Commons, as the local election campaign enters its final stretch.

There are predictions that Labour could lose hundreds of seats in tomorrow’s crucial poll - despite already being at a historically low level. Meanwhile, London mayor Ken Livingstone is also embroiled in a nail-biting contest with Conservative candidate Boris Johnson.

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