Chancellor Rachel Reeves has abandoned plans to raise income tax in the upcoming Budget, marking a major U-turn on a key Labour manifesto pledge. The decision, reportedly sent to the Office for Budget Responsibility on Wednesday, comes after weeks of internal party turmoil and speculation about Prime Minister Keir Starmer's leadership.
A Labour source confirmed that both Starmer and Reeves have scrapped the income tax rise, which would have broken their election promise not to increase taxes on working people. The Treasury had been preparing MPs for a breach of the manifesto, but the U-turn follows intense briefing wars and open discussion among Labour MPs about challenging Starmer.
Instead of raising income tax rates, Reeves is now expected to rely on smaller measures to fill a multibillion-pound fiscal hole, including a freeze on personal tax thresholds introduced by the Conservatives—a move often seen as a stealth tax rise. Higher levies on gambling, pushed by former Prime Minister Gordon Brown, are also being considered to help fund the scrapping of the two-child benefit cap.
The U-turn comes after Reeves gave a strong indication at a Downing Street press conference that she might raise income tax, saying she had to face 'the world as it is.' Downing Street and the Treasury had warned Labour MPs not to speak out against the Budget for fear of disrupting bond markets, but that message has been undermined by the internal strife.
The week saw extraordinary briefings suggesting Health Secretary Wes Streeting was planning a leadership challenge, which he denied. Allies of Starmer insisted he would fight any challenge, but the move backfired, with some MPs believing it has started the race to succeed him.
