Chancellor Rachel Reeves used a hastily arranged speech on Tuesday to prepare voters and financial markets for possible tax rises in the upcoming budget, signalling that the government may abandon its pre-election pledge not to increase income tax. No chancellor has raised the basic rate since Denis Healey in 1975.
Addressing two key audiences, Reeves sought to explain why higher taxes might be necessary, citing dire forecasts from the Office for Budget Responsibility (OBR) that have knocked the government's spending plans off track by an estimated £20bn. She also aimed to convince investors of her determination to control public finances.
Reeves placed much of the blame on long-term policy failures, including 'stop-go investment' and the 'rushed and ill-conceived' Brexit deal, as well as short-term challenges such as US tariffs under Donald Trump. 'Years of economic mismanagement have limited our country's potential,' she said.
While not explicitly committing to income tax rises, Reeves hinted that the burden would fall more broadly than previously suggested. 'If we are to build the future of Britain together, we will all have to contribute to that effort,' she said. 'Each of us must do our bit.'
The chancellor contrasted her stance of maintaining public spending, particularly in the NHS, with what she called impossible promises of cuts from Reform and the Tories. Her allies argue that the dividing lines for the next election are now clear: Labour investment versus austerity from right-wing rivals.
With the budget set for 26 November, Reeves left the door open to breaking Labour's manifesto pledges if necessary to stick to her 'iron clad' spending rules, sending a clear signal to markets of her willingness to take drastic action.
