Rachel Reeves ‘considering 2p increase to income tax’
Chancellor Rachel Reeves is reportedly considering an increase in income tax in next month’s budget.
The Treasury is exploring the possibility of increasing interest rates by 2p while also reducing National Insurance by 2p. Telegram.
comes later Independent It said Ms Reeves was under pressure to break her manifesto commitment and introduce changes to the top rate of income tax.
The Chancellor faces the prospect of raising taxes on November 26 as he tries to balance the books and maintain his golden rule of funding day-to-day spending with tax revenue.
Sir Keir Starmer on Wednesday refused to stick to Labour’s manifesto not to increase VAT, income tax or national insurance in the budget.
He has previously said Labor’s commitment to voters ahead of the 2024 general election “remains valid”, but he did not repeat that assurance in the House of Commons and his press secretary avoided using the phrase.
Asked about Conservative leader Kemi Badenoch’s remark, Sir Keir said no prime minister or chancellor would predetermine their plans.
“The Budget is on 26 November and we will set out our plans, but I can now tell the House that we will build a stronger economy, shorten NHS waiting lists and deliver a better future for our country,” he said.
The Prime Minister’s press secretary similarly said: “We will not pre-empt the budget,” adding: “The legacy we received from the last government was worse than any of us had previously thought.
“Disastrous austerity, failed Brexit deals and Liz Truss’s borrowing spree have caused serious damage to the economy and it is up to this Government to clean up their mess.”
Ministry sources had said this before. Independent Changes to the top rate of income tax are being discussed in Whitehall as part of Budget planning.
A source said: “The 45p rate is definitely in play. It would be a popular move within the party.”
The 45p rate applies at 45 per cent on incomes over £125,140 and is expected to be paid by more than 1.2 million people by the end of the year.
Another source suggested that any breach of the manifesto’s commitments would be “understandable” if it were “targeted at the highest earners”.
The Institute for Fiscal Studies (IFS) warned earlier this month that Ms Reeves may need to come up with a £22bn tax increase or spending cuts to regain the £10bn gap she left herself against debt targets in the spring.
This gap is a result of higher borrowing costs, more persistent inflation and weaker growth, as well as spending commitments such as the partial reversal of the winter fuel payment cut and the watering down of welfare cut plans.
Ms Reeves hopes better-than-expected inflation figures and a slight improvement in some growth forecasts will help ease the pressure.
