Chancellor Rachel Reeves has abandoned plans to raise income tax rates in the upcoming budget, according to reports. The U-turn comes after weeks of internal party turmoil and briefing wars, with the prime minister and chancellor reportedly “ripping up” the main measures.
The decision to break a key Labour manifesto pledge on income tax was sent to the Office for Budget Responsibility on Wednesday. Downing Street did not deny the reports but declined to comment on budget matters. Sources indicated that Reeves may instead adjust tax thresholds, a move likely to be perceived as a stealth income tax rise.
The reversal follows a period of extraordinary infighting within the party, with allies of Prime Minister Keir Starmer suggesting he would fight any leadership challenge. Speculation had centred on Health Secretary Wes Streeting as a potential challenger, a claim he publicly denied. The turmoil escalated after Downing Street briefed the Guardian about the dangers of destabilising the government, which backfired by fuelling leadership speculation.
Reeves and Starmer are now expected to rely on several smaller tax-raising measures to fill a multibillion-pound “hole” caused by lower productivity and U-turns on other policies, including cuts to winter fuel allowances and disability benefits. Among these measures could be higher levies on gambling, pushed by former Prime Minister Gordon Brown, to help fund the scrapping of the two-child benefit cap. However, Treasury sources have indicated that revenues from such levies would not come close to covering the cost.
The U-turn comes ten days after Reeves hinted at possible tax rises during a Downing Street press conference, where she stated, “As chancellor, I have to face the world as it is, not the world that I want it to be.” The Treasury had been preparing Labour MPs for a manifesto breach, but the internal backlash and leadership speculation forced a change in direction.
