Reeves scraps plans to raise income tax at Budget, reports say

Chancellor Rachel Reeves has ditched controversial plans to break Labour’s manifesto pledge and raise income tax in a U-turn ahead of the Budget, it has been reported.

The chancellor had been expected to hike income tax in the face of a large gap in her spending plans, hinting as recently as Monday that the alternative would be “deep cuts” to public investment.

But the Financial Times has reported that she has now abandoned those plans over fears they could anger both voters and backbench Labour MPs.

The decision was communicated to the Office for Budget Responsibility on Wednesday, when the chancellor submitted a list of “major measures” to be included in her Budget on November 26, according to the newspaper.

An income tax rise would help her bridge a fiscal black hole estimated by some economists to be as much as £50 billion. Still, it would also break Labour’s clear manifesto pledge not to raise income tax, national insurance or VAT.

The prospect of a manifesto breach drew criticism earlier this month from Labour’s new deputy leader, Lucy Powell, who said it would damage “trust in politics”.

Having vowed not to return to “austerity” through deeper spending cuts, the chancellor could now have to rely on increases in a wider range of smaller taxes if she is to stick to her self-imposed rules on debt and borrowing.

The Financial Times suggested that another option would be to reduce income tax thresholds while keeping tax rates unchanged, which could raise billions of pounds for the Treasury.

Reeves began November with a speech in which she failed to rule out an income tax hike, having previously said that Labour would stick to its manifesto commitments.

On Monday, she told the BBC that sticking to those commitments “would require things like deep cuts in capital spending” that could harm productivity growth.

Conservative leader Kemi Badenoch said the reported U-turn was “good (if true)”.

In a post on X, she said: “Only the Conservatives have fought Labour off their tax-raising plans.

“But one retreat doesn’t fix a Budget built on broken promises. Reeves must guarantee no new taxes on work, businesses, homes or pensions – and she should go further by abolishing stamp duty.”

Liberal Democrat deputy leader and Treasury spokeswoman Daisy Cooper described the move as an “11th hour screeching U-turn” but said struggling families could be spared “yet another punch in the stomach Budget”.

She said: “The Chancellor should look at our plan for a windfall tax on the big banks’ billions in profits and put £270 back into people’s pockets.”