Income tax – live: Markets spooked after Reeves U-turn on major Budget tax increase

Kate Devlin, white room editor of The Independent, reports:

A chancellor under pressure who does not have to raise income tax against all odds should be a moment of celebration for the government.

And yet Labor appears mired in chaos once again.

Reports of a budget U-turn have frightened British investors.

And the Solution Foundation think tank warns that “excessive Budget kite-flying risks increasing market uncertainty”.

Meanwhile, Labor MPs fear their government will “make even good news seem bad”.

And all this more than a week before Ms. Reeves is due to announce her make-or-break budget.

UK government bonds and sterling remained under pressure following reports that the Chancellor had scrapped plans to raise income tax in the upcoming budget.

Speculation triggered a sell-off in government bonds, also known as gilts, with yields on longer-dated 30-year bonds rising 14 basis points to 5.37% in early trading and 10-year bonds rising 12 basis points to 4.56%.

Yields move in the opposite direction to bond prices.

Sterling also fell; It fell 0.3% to 1.313 US dollars and fell 0.3% to 1.128 euros.

The Chancellor has reportedly abandoned plans to increase income tax in the Budget due to improving economic forecasts.

Reports published overnight suggested that a major tax increase was no longer planned for the November 26 fiscal statement.

The strength of tax revenues improved the Office for Budget Responsibility’s figures, allowing the U-turn, according to the PA news agency.

This is especially true with stronger wage performance because the higher wages are, the more taxes are paid on them.

The decline in productivity was also not as bad as first feared.

The latest measures were thought to have been introduced last week rather than as an ad hoc response to the turmoil caused by a briefing war at Number 10 this week.

UK borrowing costs have risen and the pound has fallen after Rachel Reeves’ sensational U-turn on plans to raise income tax in the Budget.

The chancellor’s change triggered a sell-off in UK government bonds, also known as gilts, which are the government’s means of borrowing money from private investors.

Ms Reeves was widely expected to raise income tax in the face of a widening gap in spending plans, and as recently as Monday she signaled the alternative could be “deep cuts” to public investment.

However, the Financial Times reported that it has now given up on submitting these plans to the 26 November Budget for fear it could anger both voters and Labor MPs. Improved economic forecasts were also cited as the reason for this move.

The tax increase would break Labour’s election manifesto pledge not to increase income tax, national insurance or VAT.

Following Friday’s reports, 30-year bond yields rose as much as 14 basis points in early trading and 10-year bond yields rose 12 basis points, their biggest increase since July. Yields move in the opposite direction to bond prices, meaning that when yields rise, prices fall.

When the markets opened, sterling also felt the initial shock but then started to recover.