Chancellor Rachel Reeves has reportedly abandoned plans to raise income tax in her upcoming budget, marking a significant U-turn after weeks of internal party turmoil. Sources confirmed to the Guardian that both Prime Minister Keir Starmer and Reeves have ditched the proposal, which would have broken a key Labour manifesto pledge.
The decision follows a week of intense briefing wars within the party, with speculation about a potential leadership challenge against Starmer. The Financial Times first reported that the Treasury had sent revised plans to the Office for Budget Responsibility, abandoning the income tax rise. Downing Street declined to comment but did not deny the reports.
Instead of raising income tax rates, Reeves is now expected to rely on smaller tax-raising measures, including freezing personal tax thresholds and potentially increasing levies on gambling. These measures aim to fill a multibillion-pound “hole” caused by lower productivity and U-turns on policies like winter fuel allowances and disability benefits.
The U-turn comes just 10 days after Reeves refused to rule out income tax rises during a Downing Street press conference, stating she must “face the world as it is.” The Treasury had previously briefed Labour MPs to prepare for a breach of the manifesto, warning against public dissent due to potential impacts on bond markets.
However, the internal strife over Starmer’s leadership and the briefings against Health Secretary Wes Streeting have undermined the government’s message. Despite Labour’s large majority, MPs have shown willingness to rebel, as seen in the welfare vote defeat in July. The party now faces the challenge of balancing fiscal credibility with keeping its promises to voters.
