Chancellor Rachel Reeves has signalled that tax rises may be unavoidable in the upcoming Budget, as she seeks to prepare both financial markets and disillusioned Labour voters for difficult decisions. In a hastily arranged speech on Tuesday, Reeves hinted that the government might abandon its pre-election pledge not to raise income tax, citing dire forecasts from the Office for Budget Responsibility (OBR). No chancellor has raised the basic rate of income tax since Labour's Denis Healey in 1975.
Reeves blamed 'years of economic mismanagement' for the UK's weak performance, pointing to long-term policy failures including 'stop-go investment', the 'rushed and ill-conceived' Brexit deal, and lack of preparedness for Covid. She contrasted Labour's commitment to maintaining public spending, particularly in the NHS, with what she described as impossible promises of cuts from Reform and the Tories. The chancellor argued that sticking to Labour's investment plans is vital for public services and productivity.
The speech came less than three weeks before the Budget on 26 November, an unusually close timing for a formal address. Reeves and her team are acutely aware of the communications challenge ahead, especially after the OBR downgraded productivity forecasts, knocking the government's tax and spending plans off track by an estimated £20bn. The chancellor also referenced shorter-term shifts, including Donald Trump's US tariffs, saying the public would understand the picture had changed.
Reeves left the door open to tax rises that hit more than just those with the 'broadest shoulders', stating: 'If we are to build the future of Britain together, we will all have to contribute to that effort. Each of us must do our bit for the security of our country and the brightness of its future.' This was seen as a signal to markets that she is prepared to take drastic action, even breaking Labour's promises, to stick to her 'iron clad' spending rules.
The chancellor's allies say she emerged emboldened from the autumn conference season, feeling the dividing lines for the next general election are now clear: Labour investment versus austerity from rightwing rivals. However, the combination of weaker economic forecasts and her refusal to make Osborne-style cuts points to tax rises in the Budget, potentially affecting a broader range of taxpayers than previously anticipated.
