The laddie's for turning. According to Gordon Brown, yesterday's decision to compensate pensioners and the low-paid left with less income as a result of abolition of the 10p starting rate tax band shows that he leads a government that listens, knows what is happening on the ground and is prepared to help when there is a case to do so. To the general public, the decision smacks of a U-turn executed to avoid the prospect of a humiliating defeat in the Commons next Monday, one that would cause more damage to a Prime Minister already on the ropes.

In the event, the tactic worked. Frank Field, the former government minister, withdrew his amendment calling on the government to compensate the losers in the tax regime change. Now that compensation has been promised, the threatened rebellion by a sufficient number of Labour MPs to force a defeat on the Finance Bill has melted away. All is well at 10 Downing Street, then? Far from it. Mr Brown has been working hard to challenge a reputation for dithering and indecision, one earned by his response on several fronts, but his handling of this will make the task even harder to achieve. Mud sticks in such circumstances.

Both he and Alistair Darling, the Chancellor, had set their faces against the notion that there was a problem with scrapping the 10p tax band. Both had insisted that the Budget could not be reopened and that there would be no going back on abolishing the band. But there was a problem and it is to be addressed by making direct payments or changing the tax credit system to compensate the losers: those in the 60-64 age bracket, mainly women, who do not qualify for the pensioner tax credit and childless young people under 25 on low pay who do not qualify for the working tax credit.

When backdating to April is factored in, the cost to the Treasury could be about £1bn. Where the cash to pay for this is to come from is far from clear, perhaps jeopardising other spending programmes. The financial cost of the U-turn could be high but the political price will be higher still. Labour backbenchers spoiling for a fight on other contentious government policies (42-day detention, for instance) will feel emboldened by a victory which, they will sense, demonstrates that Mr Brown will back down when faced with a potentially dangerous rebellion.

A prime minister's authority suffers in such times, something Mr Brown can ill afford when his personal ratings in the polls are low. It is hard to imagine that a prime minister with an intimate knowledge of the tax regime (which he fashioned as chancellor) and a record of fighting poverty did not anticipate this difficulty arising. Did he hope no-one would read the small print? Was he simply out of touch? Or arrogant? The net result is that his reputation, and that of the government he leads, has been further undermined. The Tories have been allowed to inflict wounds by exploiting weakness in the one policy area about which he cares passionately: eradicating poverty. The situation beggars belief. Can Mr Brown hope to recover?