Gordon Brown has denied last week's Budget offered workers a "tax con" and insisted the majority of people will be better off under his budget.
The chancellor has been defending his Budget before the treasury select committee and rejected claims it will hit low earners hardest.
Mr Brown announced a two pence cut in income tax, with effect from April 2008. However, he was accused of effectively cancelling this out for low earners by removing the lower ten pence tax rate.
Low earners will be able to claim back any lost income as tax credits, the chancellor insisted, while the overall tax burden is lower than after the last budget.
He also rejected claims the Treasury was depending on the majority of those eligible not claiming tax credits, even though only 25 per cent of qualified workers claimed tax credits in 2004. The government is looking to improve take up, the chancellor insisted.
The Conservatives had argued tax credits were too complicated and many eligible families would not claim them.
Shadow chancellor George Osborne said: "Gordon Brown made tackling poverty the great promise of his chancellorship, and yet he leaves the Treasury with poverty rising. The con trick in the Budget grows."
Recent figures showed child poverty is rising, with the government on course to miss its target of halving child poverty by 2010.