Rachel Reeves has reportedly abandoned plans to break Labour’s manifesto and increase income tax in the upcoming Autumn Budget.
The Chancellor was ready to raise income tax by 2p while reducing national insurance by the same amount, a move that would contravene Labour’s promise not to increase taxes on ‘working people. ‘.
In recent weeks, high-ranking government officials appearing in media interviews have suggested a withdrawal from these commitments as Reeves grapples with a £30bn deficit in public finances.
However, the initial set of Budget proposals submitted to the UK fiscal watchdog – including an income tax rise – have now been dismissed, effectively sending Reeves back to square one.
This development, first reported by the Financial Times, leaves Reeves with fewer options to generate a substantial sum from a single general rate increase, as reported by City AM.
Instead, indications are now pointing towards several tax increases targeting specific sectors such as gambling and high-value properties.
This renewed uncertainty about the Treasury’s plans comes after business leaders across the country warned the Chancellor that months of Budget anxiety had undermined consumer confidence and caused companies to delay crucial investment decisions.
Another income tax option believed to be under consideration involves lowering the thresholds at which people pay different rates, while leaving the basic and higher rates unchanged.
The move comes as Reeves is already expected to extend a freeze on personal tax thresholds, a strategy projected to generate between £8bn and £10bn.
However, reducing the personal tax thresholds could contribute an additional few billion to the public coffers.
This follows an incident where Reeves was seen leaving Downing Street with her diary in view, revealing the word “thresholds” in reference to a meeting.
The income tax debate has caused friction within Labour, with new deputy leader Lucy Powell expressing concern about the potential impact on trust.
In the run-up to the 2024 election, Labour pledged not to increase national insurance, income tax or VAT.
Earlier this week, City AM reported that voters believe Reeves should be dismissed if she violates this commitment by raising income tax.
The most recent City AM/Freshwater Strategy poll indicated that two thirds (66 per cent) of the UK electorate believe that Reeves should resign if she opts to increase income tax when she speaks at the dispatch box on November 26.
