Chancellor Rachel Reeves has abandoned plans to raise income tax in the upcoming budget, reversing her previous stance after weeks of internal debate and a shift in political circumstances.
Government insiders say the U-turn was influenced by updated official forecasts showing a smaller fiscal shortfall of around £20bn rather than £30bn, reducing the need for politically risky tax rises. However, some officials note the forecasts did not change drastically, suggesting political considerations also played a role.
Reeves had been preparing the ground for breaking Labour's manifesto pledge not to raise income tax, delivering speeches warning of tough choices. But after a backlash over Prime Minister Keir Starmer's leadership, she and Starmer agreed to drop the plan.
Various options had been considered, including a 2p rise in income tax offset by a 2p cut in national insurance, which would have raised £6bn but targeted pensioners and landlords. Others suggested limiting national insurance cuts to lower earners. Some proposed tax rises were scrapped after the Office for Budget Responsibility judged them ineffective.
Instead, the chancellor may freeze tax thresholds for longer, raising an estimated £7.5bn. The budget is now expected to include a 'smorgasbord' of other tax increases without touching income tax rates.
