Chancellor Rachel Reeves has signalled that income tax rises could be announced in the upcoming Budget, potentially breaking Labour's manifesto pledge not to raise the levy. The move is being considered to fill a £30bn hole in the public finances.
If Reeves adds 1p to the basic rate of income tax, raising it from 20% to 21%, it would cost taxpayers up to £377 a year. For someone earning £35,000—the average UK income—the annual bill would increase by £224. The measure could raise £6.9bn in 2026-27.
Alternatively, targeting higher earners by increasing the higher rate by 1p would raise less revenue—£1.6bn—but spare basic-rate taxpayers. Someone earning £55,000 would pay an extra £47, while those on £75,000 would face an additional £247.
A more aggressive option would add 1p to all income tax rates, generating nearly £11bn annually by 2029-30. This would cost a £35,000 earner £224, a £55,000 earner £424, and a £75,000 earner £624.
Another proposal involves increasing income tax by 2p while cutting national insurance by 2p, raising £6bn without affecting workers' take-home pay. The Resolution Foundation says this swap would protect pay packets.
