Tax breaks bring hope of success for bail-out

The addition of tax breaks for certain niche industries, including children's arrow makers and racetrack owners, to the $700 billion US bank bail-out today raised new hopes that the rescue deal could finally be passed by Congress.

Amid increasingly frantic horse-trading, the bizarre concessions were included in the emergency legislation in a bid to win over opponents who helped vote down the original plan this week.

Other tax breaks, including one for imported rum producers and others for middle-class voters, have also been added to the package which US leaders from across the political spectrum say is essential to stop a financial meltdown.

The changes raised hopes that the House of Representatives, which must endorse the bail-out for it to become law, would hold a vote on the plan today and end the uncertainty which has continued to cast a cloud over stock markets.

Prime Minister Gordon Brown will fly to Paris tomorrow to discuss the financial crisis with his fellow EU leaders. He will be pressing for coordinated and strengthened regulation of the banking system.

In the US, the success of the bail-out remains uncertain, partly because of fears that previous supporters, including conservative "Blue Dog" Democrats worried about increased state spending, might now vote against because of the cost of the additional tax breaks.

The US Senate, the upper house of Congress, has already voted in favour of the package, which has been endorsed by George Bush and the two presidential candidates, Barack Obama and John McCain.

If approved today, the bail-out will use $700 billion of American taxpayers' money to buy the failing mortgage assets of US banks with the aim of freeing up the world credit markets and bolstering economies.

Some critics, including billionaire financier George Soros argue that the scheme is misguided and will either not achieve its intended effect or will be less effective that alternative measures.

In a sign of the anxiety about the deal, the Dow Jones - which was also hit by negative economic data - plunged another 348 points yesterday, while Asian markets also fell heavily.

With a further slump in values almost inevitable if the bail-out package failed, both Democrat and Republican leaders in the House of Representatives, which rejected the original package by 228 to 205 - were last night frantically battling to secure sufficient new support to reverse the result in the second vote.

Several representatives have already announced that the addition of $110 million of tax breaks and other sweeteners has been sufficient to alter their vote in favour.

Among those declaring a change of heart was Republican Ileana Ros-Lehtinen who said she was switching her "no" vote to a "yes".

"What we had was a bail-out for Wall Street firms and not much relief for taxpayers and hard-hit families. Now we have an economic rescue package," she said. Another Republican, Jim Ramstad of Minnesota, said he would also be voting in favour, partly because the legislation would give people with mental illness better health insurance coverage.