Chancellor Rachel Reeves has decided against raising income tax in the upcoming Budget, despite weeks of signals that she was prepared to break Labour’s manifesto pledge. The U-turn came after a political backlash over Keir Starmer’s leadership and revised official forecasts showing a smaller fiscal shortfall.
Government insiders revealed that the shortfall was closer to £20 billion than the previously estimated £30 billion, allowing Reeves to avoid the politically risky move. However, some officials noted that the forecasts did not change drastically in the last week, suggesting the decision was driven by a desire to calm political turmoil.
For weeks, Reeves had sided with advisers who argued for an income tax rise to address the fiscal challenge. She told the BBC that keeping manifesto promises would require spending cuts. But after Starmer faced criticism over a botched leadership strategy, the Chancellor and Prime Minister agreed to drop the income tax plan.
Other options remain on the table, including freezing tax thresholds for longer, which would raise an estimated £7.5 billion, and limiting national insurance cuts. Some planned tax rises, such as removing tax breaks for professionals in partnerships, were scrapped after the Office for Budget Responsibility judged they would not raise significant revenue.
Reeves had confirmed to the OBR on 31 October that an income tax rise was among the measures under serious consideration. In a pre-budget speech on 4 November, she warned of tough decisions. However, after the OBR presented its latest forecasts on Monday, Reeves hinted at the U-turn, telling the BBC later that day that sticking to manifesto pledges would require deep cuts in capital spending.
