Labour ministers terrified at Rachel Reeves’s plan to hike income tax | Politics | News
Rachel Reeves has been warned by Cabinet colleagues not to break Labor’s manifesto commitments after reports emerged that she was desperately considering an immediate tax grab. The Chancellor is reportedly eyeing a dramatic move to increase income tax in a bid to find £30bn to plug his latest fiscal black hole.
The Treasury is said to be considering adding 1p to the basic income tax rate, which would raise around £8bn. Such a move would cost a British worker earning over £220 a year £35,000, or someone earning over £50,270 £377 a year. While Labour’s election manifesto provided a firm guarantee not to raise income tax, National Insurance or VAT, a Treasury source said: “There’s a very lively debate going on right now among those planning the Budget about how bold we want to be.”
Sir Keir Starmer’s spokesman refused to rule out the move, insisting the Government would not comment on tax speculation ahead of the Budget.
“The budget choice is clear – we can return to the cycle of austerity, debt and recession, or we can continue to invest in renewing Britain with an economy that works for working people,” the spokesman said.
“We will always choose the latter and, as always, it is up to the Chancellor to set next month’s budget in Parliament.”
A minister insisted Labor “stand behind our manifesto” but did not guarantee the commitment would be delivered in the Budget.
But some Cabinet ministers have expressed fears that breaking the manifesto pledge would be viewed negatively by voters at a time when Labour’s support is already falling.
There must be a “very, very high threshold” for reneging on the promise, a minister has warned.
Ms Reeves was criticized for allocating just £10bn for herself in the last budget for so-called fiscal headroom; this was a buffer to absorb economic shocks while ensuring that the country’s financial situation was still recovering.
The Chancellor is believed to be determined to give himself much more space in the November Budget, but this will require further tax rises or spending cuts.
A Treasury source told The Guardian: “No one wants it to be £10bn again, but there is an argument for us to go much higher, which would mean we wouldn’t have to go back and do it again and we could have room to cut taxes before the Budget.
“But if we continue down this path, it becomes more likely that we’ll have to raise income tax; that’s the debate that’s going on right now.”
Responding to the reports, Paul Dales of Capital Economics warned: “This takes money from households, reduces their real disposable income and leaves them with less money to spend.
“The question is whether there will be any additional impact of any confidence effect, because that would be quite a big event, it would take a lot of pressure, you could have households pull back a little bit more than expected. [forecast models] recommend.”
