Rachel Reeves income tax rise would fail to save UK PLC | UK | News
Rachel Reeves considers the possibility of Labor abandoning its manifesto pledge not to increase income tax. Reports suggest the Chancellor is in talks about increasing base pay for employees, a move that could bring in around £8bn.
If implemented, this would be the first income tax increase since Denis Healey increased it from 30 percent to 33 percent in the 1970s.
According to The Telegraph, Reeves faces a significant deficit of up to tens of billions of pounds in the upcoming budget due to lower-than-expected growth and rollbacks in welfare reforms.
Labour’s previous tax commitments
Labor has consistently promised not to increase taxes on “working people” and its manifesto also pledged not to increase income tax, National Insurance or VAT. But leading economists argue that a series of small tax raids will not raise enough funds to plug the £30bn deficit and could be more economically damaging than raising major taxes.
According to reports, some advisers at the Treasury and Downing Street now believe additional payroll taxes may be the only way for Reeves to comply with his “iron-clad” fiscal rules. One potential option is a 1p increase in the main income tax rate, which could reach around £8bn, sources told The Guardian.
Political concerns and public trust
Reeves is concerned that breaking the manifesto commitment would expose Labor to further political criticism from Conservatives and UK Reformers and could be seen as targeting “working people”. Treasury sources have previously told The Telegraph that tax increases are more likely to be focused on the wealthy, whom Reeves calls “the broadest shoulders”.
Reeves’ officials reportedly think a one-off tax raid on incomes would allow Labor to avoid further tax rises for the remainder of Parliament, potentially allowing the Government to rebuild public confidence before the next general election. But the move could also negatively impact Labour’s poll performance against Reform, which has maintained a double-digit lead over the Government for months.
Upcoming local elections and budget decisions
Nigel Farage’s party is also expected to win a significant share of Labor votes in the May local elections; MPs predict this will be a significant political challenge for Sir Keir Starmer. Reeves has reportedly already decided to increase the Government’s “headroom” in the Budget by providing greater flexibility in public finances in case unexpected spending shocks occur next year.
The government has consistently attributed the size of the deficit Reeves must address to external factors, including Donald Trump’s tariffs, conflicts in Ukraine and Gaza, and Brexit. “There’s a very lively debate going on at the moment among budget planners about how bold we want to be,” a source told The Guardian, adding that anything higher than the previous figure of £9.9bn would “increase the likelihood of us having to raise income tax”.
Treasury sources responded
Two Treasury sources told The Telegraph on Thursday night that Labour’s manifesto commitment was “valid” until any Budget decision is announced on 26 November.
The Office for Budget Responsibility is still assessing aspects of government policy as part of the “scoring” process, one source warned, while warning about the finality of tax decisions.
But sources declined to comment on whether Reeves was already involved in discussions about breaking his tax return commitments.
