Chancellor Rachel Reeves has ruled out raising inheritance tax in the upcoming Autumn Budget, according to government sources. The decision comes after a turbulent week for the government, with Reeves opting instead to freeze income tax thresholds for two years, a move expected to raise £7.5bn.
The freeze will drag more workers into higher tax bands due to inflation and wage growth, effectively increasing the tax burden without raising headline rates. This U-turn follows weeks of speculation that Reeves might increase income tax rates, which would have broken a manifesto promise.
The change in strategy was prompted by revised forecasts showing a smaller fiscal black hole of around £20bn, rather than the previously estimated £30bn. However, the decision has sparked a sell-off in bond markets, pushing government borrowing costs higher and the pound lower.
Other potential tax rises under consideration include ending tax breaks for salary sacrifice pension schemes, introducing a new tax on electric vehicles, and increasing taxes on higher-value properties and rental income. The Treasury declined to comment on budget speculation.
Prime Minister Sir Keir Starmer has faced pressure from MPs not to let the budget worsen Labour's political position. Health Secretary Wes Streeting welcomed the decision not to raise income tax rates, stating that breaking manifesto pledges risks losing voter trust.
