Gordon Brown's decision to abolish the 10p rate of income tax will push more than 300,000 people below the poverty line, according to the Conservatives.
The attack came as the Labour rebellion against the move continued to grow. By last night, 41 Labour backbenchers had signed an amendment to the Finance Bill calling for immediate compensation for the estimated 5.3 million losers from the change – enough to defeat the Government in a crunch vote due next Monday.
A total of 86 Labour MPs have now expressed concern about Mr Brown's decision when previous Commons motions are taken into account.
Alistair Darling, the Chancellor, announced a new concession when he met 50 Labour backbenchers yesterday in an attempt to head off defeat. He promised that cash help for some of those who lose out would take effect in the current financial year.
On Monday, ministers suggested the money would not be paid until the 2009-10 financial year. Yesterday's statement was seen by the MPs as a hint that any change to tax allowances or tax credits could in effect be backdated.
The Tories cited figures from the Institute for Fiscal Studies showing that the people losing most from the abolition of the 10p rate earn £149 a week – just above the official poverty line of £145 a week.
Greg Clark, a Tory frontbencher, said: "About 1.5 million people live on up to £10 a week more than the poverty line. A tax policy that costs these individuals around £5 a week will push more than 300,000 people below the poverty line. It is as if the tax change had been finely tuned to cause the maximum possible damage to the Government's policy objectives."
He said that the Government's decision to focus on its target of halving child poverty by 2010 was "creating a real crisis of poverty among people who don't have dependent children" – the biggest group of losers from the 10p change.
"There are more people in severe poverty than at any time in the past 30 years, and on present trends half of all people in poverty will be in severe poverty in 2010," said Mr Clark.
But Mr Darling's aides dismissed the claims as "a back of an envelope" calculation that did not take account of tax credits or the national minimum wage.
The Chancellor said his talks with MPs had been "very useful". Geoff Hoon, the Government's chief whip, urged all cabinet ministers at their weekly meeting to make the case for the tax shake-up to MPs.
The Treasury Select Committee announced a short, sharp inquiry into Mr Brown's decision, which could propose a way of compensating the losers that is accepted by ministers. The inquiry could persuade some potential rebels not to oppose the Government and to wait until after it reports before deciding whether to oppose the Bill.
The 41 Labour MPs who defied Mr Brown's plea for unity by backing the former minister Frank Field's call to compensate the losers included 12 voicing public criticism for the first time.
Trade unions are backing the calls for compensation. Dave Prentis, general secretary of Unison, will tell the Scottish TUC today: "A review that kicks the problem into the long grass is not enough. These workers need to be compensated now."
Downing Street refused to say whether Mr Brown saw the tax issue as a "confidence vote", simply describing it as "important".