Rachel Reeves has decided to abandon her proposal to go against Labour’s promise of not raising income tax in the Budget, as per recent revelations. This move comes despite the Chancellor laying the groundwork for potential tax hikes through speeches and radio interviews over the past few weeks.
Reeves clarified on Monday that no final determinations have been reached regarding tax and expenditure, just two weeks before the Budget. However, she hinted at a tax increase by highlighting the challenge of adhering to Labour’s tax commitments without significant spending cuts.
The Financial Times reported a significant shift in Downing Street’s stance, following a tumultuous period for Keir Starmer, with talk of a potential leadership challenge. The possibility of addressing a multi-billion pound deficit in public finances by adjusting income tax thresholds while keeping basic and higher tax rates unchanged is reportedly under consideration by Reeves.
Initially, her plan involved a 2p increase in income tax rates and a 2p reduction in national insurance rates, impacting landlords and pensioners more than “working people.” In a remarkable departure from her previous stance, Reeves is exploring alternative strategies to address the financial gap.
In a speech last week, Reeves hinted at the likelihood of deviating from manifesto commitments on tax, citing the necessity to acknowledge existing financial constraints. She emphasized the need for collective contributions to secure the nation’s future in the face of fiscal challenges.
The decision to step back from the proposed tax hikes has been met with concern by economist Ben Zaranko from the Institute for Fiscal Studies, warning of potential economic repercussions and increased likelihood of future policy reversals due to opposition from various interest groups.
A Treasury spokesperson declined to comment on speculations surrounding tax adjustments outside official fiscal events but assured that the Chancellor is focused on making fair decisions to strengthen the country’s foundation for the future.