Lucy Powell says Labour must stand by promise not to raise key taxes | Labour

Labor deputy leader Lucy Powell has said she must stand by her manifesto pledge not to increase income tax, national insurance or VAT, in a direct challenge to her own party.

As the Treasury examines whether income tax should be increased to plug a £30bn fiscal deficit, Powell said it was “really important that we stand by the promises we made when we were elected and do what we said we would do”.

He said: “Trust in politics is an important part of this because if we’re going to take the country on our side then they need to trust us and that’s really important. Of course we have to follow our manifesto. There’s no doubt about that.”

Powell made a significant intervention on BBC Radio 5 Live, where he also called for the two-child benefit limit to be removed entirely rather than relaxed.

He said he wanted a “fair budget” that put more money into people’s pockets rather than less, and with “a strong Labor story about how we are reshaping the country in the interests of the many, not just the few”.

His remarks are likely to come as an irritant to chancellor Rachel Reeves and Keir Starmer, as they have both refused to reiterate their pledge to stand behind their tax return pledge in recent weeks.

The government is considering the possibility of increasing income tax as a way to significantly boost public finances and create an extra buffer against possible fiscal shocks.

In a speech this week, Reeves was interpreted as advocating for tax increases to enable more investment in public services.

“It’s important for everyone (the public and politicians) to understand this fact. The less we spend on interest on debt, the more we can spend on working people’s priorities, on the NHS, on our schools, on our national security, on public services that are essential for a decent society and a strong economy,” he said.

But it is not yet clear whether Reeves will opt for an increase in income tax, which could reach £7bn, rather than a series of smaller tax measures. Final estimates have not yet been submitted to the chancellor, meaning decisions still need to be made.

Powell’s pre-budget intervention is a sign that he is willing to question prevailing sentiment in Downing Street after winning the vice-presidential election by promising not to “sugar coat” his views.

As the party’s deputy elected leader, he is in a unique position to challenge Starmer and Reeves; He was chosen by members last month to replace Angela Rayner, ahead of the government’s choice, Bridget Phillipson. Powell was previously sacked as leader of the House of Commons by Starmer during the reshuffle after the summer recess and is not bound by collective responsibility.

The deputy leader’s comments reflect the concerns of some Labor MPs who are privately concerned about the impact on confidence of breaching the manifesto pledge, and Reeves’ own assertion last year that he would not come back publicly with further tax rises.

Cabinet ministers appear largely resigned to the idea of ​​raising income tax, embracing the argument that it is better to push for a big tax hike relatively early in parliament rather than deal with numerous smaller tax measures.

But some hard-liners worry this is a “dangerous moment” to consider the government reneging on its promise and may not be forgiven by voters.

“The two main reasons people leave us are because they think we don’t keep our promises and secondly, the cost of living. This just reinforces it,” said a Labor MP.

“Emotionally our colleagues don’t feel the same way about this as the outreach. But before Rishi [Sunak, the former Conservative PM] He increased national insurance in 2021 and ‘surveyed’ well. Not when it hits the ground. “But when everything has to come together, it’s hard to go to the chancellor and say don’t do X.”

In an interview with the BBC, Powell also said the two-child benefit limit should be “completely removed” to tackle “grotesque levels” of child poverty.

“Every year that passes with the implementation of this policy, at least 40,000 more children are pushed into deep poverty as a result, and it is therefore urgent that we repeal this policy and repeal it completely.”

Reeves is believed to be considering only partially lifting the two child benefit caps affecting universal credit, after the government previously hinted it would be removed entirely in early autumn. Instead, it is thought that he is considering taking smaller measures that will reduce the impact of the epidemic.

The Guardian first reported last month that Reeves was considering increasing income tax to help reduce the deficit, which is expected to be between £20bn and £30bn, following a bigger-than-expected fall in productivity forecasts.

But government insiders believe the economic outlook is less bleak than predicted, which could allow Reeves to avoid the problem of breaking his manifesto commitment. While the Office for Budget Responsibility’s decline in productivity is a headache, they point out that a drop in debt financing costs and more people coming into the job market could help limit the damage.