Rachel Reeves has reportedly scrapped her plan to break Labour’s manifesto pledge of not increasing income tax in the Budget, according to explosive reports. Despite the Chancellor having laid the groundwork for tax increases – including in a speech and on radio interviews – for weeks, Ms Reeves maintained on Monday that no final decisions have been made on tax and spending, with just two weeks left before her.
However, on the same day, she also hinted at a potential tax hike after stating it would not be possible to adhere to Labour’s manifesto promises on tax without making “deep cuts” in spending.
This follows her unprecedented pre-Budget speech last week, where she set the stage for tax increases in her financial statement on 26 November. However, in a dramatic shift, Downing Street has altered its course, as reported by the Financial Times last night. This comes after a turbulent few days for Keir Starmer, following briefings from his allies that he is prepared to face a leadership challenge.
A Labour civil war has since broken out following suggestions that Wes Streeting is planning a Leadership coup – a claim the Health Secretary denies, reports the Mirror.
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According to the FT, Ms Reeves is now exploring other methods to plug a multi-billion pound deficit in the public finances. One option she is reportedly considering involves lowering the thresholds at which people pay rates of income tax, while leaving the basic and higher rates of tax unchanged.
Her initial plans were reportedly to increase income tax rates by 2p, whilst simultaneously reducing national insurance rates by the same amount. This would have had no effect on “working people”, but would have resulted in individuals such as landlords and pensioners paying more tax.
In a speech delivered last Tuesday, Ms Reeves laid the groundwork for potential breaches of manifesto promises with tax increases – stating that voters will comprehend the financial constraints she is under. In an unusual pre-Budget address at Downing Street, Ms Reeves acknowledged that she must “face the world as it is, not the world I want it to be”.
When questioned if she was willing to risk losing the next election due to unpopular decisions, she pledged to “put the country first”.
The Chancellor stated in her speech: “As Chancellor I have to face the world as it is, not the world as I want it to be. And when challenges come our way, the only question is how to respond to them, not whether to respond or not.”
She continued: “If we are to build the future of Britain together, we will all have to contribute to that effort. Each of us must do our bit for the security of our country and the brightness of its future.”
In a conversation with BBC 5 Live on Monday, Ms Reeves stated: “I will set out the choices in the Budget. It would, of course be possible to stick with the manifesto commitments, but that would require things like deep cuts in capital spending and the reason why our productivity and our growth has been so poor these last few years is because governments have always taken the easy option to cut investment – in rail and road projects, in energy projects, in digital infrastructure.”
Culture Secretary Lisa Nandy declined to comment on the specifics of the Budget this morning. She emphasised that the Chancellor is “solely and fiercely focused on the challenges facing the country”.
“I’ve known the Chancellor well for 15 years now, and I can tell you that she is solely and fiercely focused on the challenges facing the country and doing what is in the best interests of the country,” she shared with Sky News. “She’s never been shy of facing people down in order to do that in opposition and in government.”
She later added to BBC News: “What I can tell you is as somebody who sits around that Cabinet table, who has discussions with Rachel and has known her for a long time, is that she won’t play fast and loose with people’s money.
“She does take her promises seriously, and she will do everything that she can to make sure that those choices are the fairest possible choices.”
Ben Zaranko, an economist at the Institute for Fiscal Studies think tank, warned that retreating from tax increases carried “considerable risks”, including a “greater risk of damaging economic impacts” and the possibility that future U-turns could become more frequent due to pressure from “lots of angry interest groups”.
A Treasury spokesman said: “We do not comment on speculation around changes to tax outside of fiscal events. The Chancellor will deliver a Budget that takes the fair choices to build strong foundations to secure Britain’s future.”
