Chancellor Rachel Reeves has decided to freeze income tax thresholds for two years rather than raise rates, a move expected to generate £7.5bn from workers. The decision marks a U-turn after the government abandoned plans to increase income tax rates, which would have broken a manifesto promise.
The freeze, which will pull more people into higher tax brackets due to inflation and wage growth, replaces earlier proposals for a direct rate hike. Government sources confirmed the shift came after a turbulent week that saw a sell-off in bond markets and questions over the prime minister's authority.
Other potential tax rises include ending salary sacrifice pension tax breaks (raising £2bn), a new tax on electric vehicles (£2bn), and additional levies on high-value properties, rental income, and gambling. The Treasury declined to comment on budget speculation.
The chancellor's change in approach follows internal criticism from cabinet members, including Health Secretary Wes Streeting, who warned that breaking manifesto pledges would erode public trust. The government now aims to fill a fiscal black hole of around £20bn while building a £15bn buffer to reassure markets.
