Chancellor Rachel Reeves has abandoned plans to raise income tax in her upcoming budget, marking a significant U-turn after weeks of internal Labour turmoil. According to a source, Prime Minister Keir Starmer and Reeves decided to ditch the proposal, which would have broken a key manifesto pledge not to increase taxes on working people.
The reversal, first reported by the Financial Times, comes after the Treasury had laid the groundwork for breaking the pledge, including sending the plan to the Office for Budget Responsibility. Reeves may now consider freezing personal tax thresholds instead, a move widely seen as an income tax rise by stealth.
To fill the anticipated multibillion-pound fiscal hole, the government is likely to rely on several smaller measures, such as higher levies on gambling. Former prime minister Gordon Brown has pushed for these levies to fund an end to the two-child benefit cap, though Treasury sources say the revenues would not be sufficient.
The U-turn follows a week of damaging briefing wars within Labour, with speculation about a potential leadership challenge to Starmer. Downing Street's attempt to shore up his position backfired after allies briefed that Health Secretary Wes Streeting was planning a coup, a claim he denied. MPs now see this as the start of the succession race.
Reeves had hinted at tax rises during a Downing Street press conference, stating she must face the world as it is. However, the backlash from Labour MPs over breaking a major promise has forced the government to retreat, highlighting the fragility of Starmer's leadership despite a large majority.
