In a dramatic political reversal, Chancellor Rachel Reeves has abandoned controversial plans to increase income tax in this month's Autumn Budget, following intense speculation about potential breaches of Labour's manifesto commitments.
The Budget That Wasn't
Speculation had been mounting that the Chancellor was preparing the country for difficult fiscal choices, potentially including an income tax hike of up to 2p. This would have represented a significant departure from Labour's firm manifesto pledge not to raise taxes on 'working people'.
Officials had been actively drafting plans that would have seen income tax increase by as much as 2p, while simultaneously reducing national insurance contributions for those earning up to £50,000 annually. The proposed measures appeared to be an attempt to balance the tax burden across different demographic groups.
Just last week, Reeves used a press conference to seemingly prepare the ground for tough decisions in the upcoming fiscal event, stating that everyone would need to 'play their part' in addressing the country's financial challenges.
How the U-Turn Unfolded
The dramatic change in direction became apparent when The Financial Times reported that the Government had indicated it would not proceed with the income tax increase through communications with the Office for Budget Responsibility (OBR).
Culture Secretary Lisa Nandy attempted to navigate the political fallout, denying that the Chancellor would 'play fast and loose with people's money' while carefully avoiding direct confirmation of the policy reversal. She told BBC Breakfast: 'She does take her promises seriously, and she will do everything that she can to make sure that those choices are the fairest possible choices.'
What Comes Next for the Budget?
With the income tax increase now off the table, Reeves faces the challenge of filling a £30 billion black hole in the nation's finances through alternative revenue-raising measures.
The Chancellor is expected to confirm that tax thresholds will remain frozen for a further two years beyond 2028, a measure estimated to raise an additional £8 billion. Other options under consideration include new property levies and a 'pay per mile' scheme for electric vehicles to compensate for declining fuel duty revenues.
There had been expectations that Reeves might adjust the controversial 'two child' cap on benefits, though it remains uncertain whether this will proceed following the income tax reversal.
Conservative leader Kemi Badenoch seized on the situation, calling for Labour to go further by abolishing stamp duty and guaranteeing no additional taxes on businesses and pensions. She declared: 'Only the Conservatives have fought Labour off their tax-raising plans. But one retreat doesn't fix a Budget built on broken promises.'
The Autumn Budget is scheduled for delivery on Wednesday, November 26, 2025, where the full extent of the Chancellor's revised fiscal strategy will be revealed.
