Rachel Reeves has informed the Budget watchdog about her intention to raise income tax in her statement on November 26. The Chancellor has signaled her plans to the Office for Budget Responsibility (OBR), indicating that an increase in personal taxation is among the significant tax measures she is contemplating disclosing.
Reports suggest that Reeves is considering a 2p increase in income tax alongside a 2p reduction in national insurance, as per The Times. This move seems to shift the tax burden away from workers to other groups like pensioners and landlords.
The proposed cut in national insurance would be applicable only to individuals earning below £50,270, reducing the rate from 8% to 6%. Wealthier individuals earning over £50,270 would not benefit from this reduction under the current considerations.
While Reeves’s plans are not finalized and could still change, submitting them to the OBR indicates a clear intention to deviate from the manifesto promise of not raising income tax. The OBR is expected to provide an assessment of the impact of such a tax hike in the coming week.
Deputy Labour leader Lucy Powell, who succeeded Angela Rayner, cautioned Reeves against breaking Labour’s manifesto commitments, including the pledge regarding income tax hikes. Housing Secretary Steve Reed declined to comment on Budget specifics but emphasized that Labour is committed to fulfilling its manifesto promises, highlighting achievements like increased NHS investments and raising the national minimum wage.
The Chancellor recently refrained from endorsing Labour’s election pledge not to increase income tax, VAT, or national insurance. Acknowledging the need to make tough decisions in the Budget to prioritize reducing NHS waiting lists, easing the cost of living, and addressing national debt, she emphasized the collective responsibility to tackle challenges realistically.
In a rare pre-Budget speech from Downing Street, Reeves hinted at potential tax increases, emphasizing the necessity for everyone to contribute. Responding to queries about the promise, Powell stressed the importance of honoring the manifesto commitments to maintain public trust in politics.
The upcoming Budget is expected to focus on key priorities such as healthcare, debt reduction, and cost-of-living concerns. The HM Treasury spokesman emphasized the Budget’s aim to address global economic challenges and align with the British public’s priorities of enhancing healthcare services, reducing national debt, and easing the cost of living.