Chancellor Rachel Reeves has dramatically abandoned plans to increase income tax in a major U-turn that throws her Autumn Budget into disarray.
Budget Plans in Chaos
The Chancellor was poised to break Labour's manifesto commitment by hiking income tax by 2p while cutting national insurance by the same amount. This controversial move would have directly contradicted the party's pledge not to raise taxes on working people.
According to initial reports from the Financial Times, the first set of Budget proposals sent to the UK's fiscal watchdog - which included the income tax increase - have now been completely discarded. This forces the Treasury back to the drawing board with less than two weeks until the November 26 Budget announcement.
Alternative Tax Measures Emerge
With one major revenue-raising option now off the table, attention is turning to alternative measures. Government sources indicate that multiple targeted tax hikes are now being considered, potentially affecting sectors such as gambling and expensive properties.
Another option understood to be under discussion involves cutting income tax thresholds while leaving headline rates unchanged. This stealth tax approach would see more people dragged into higher tax brackets without technically breaking the manifesto promise not to raise income tax rates.
The Chancellor is already expected to extend the freeze on personal tax thresholds, a measure projected to raise between £8bn and £10bn. Adjusting the thresholds themselves could potentially add several billion more to Treasury coffers.
Political Fallout and Public Opinion
The income tax debate has caused significant internal tension for Labour, with deputy leader Lucy Powell warning about the impact such moves could have on public trust. During the 2024 election campaign, Labour made firm commitments not to raise national insurance, income tax, or VAT.
Public opinion appears strongly against breaking this pledge. A recent City AM/Freshwater Strategy poll revealed that 66% of UK voters believe Reeves should resign if she proceeds with an income tax increase. The survey also indicated that months of Budget uncertainty have damaged consumer confidence and caused businesses to delay investment decisions.
The Chancellor faces the challenging task of addressing an estimated £30bn black hole in public finances while navigating both political promises and economic realities. All eyes will be on the dispatch box when she presents her Autumn Budget on November 26.
