Rachel Reeves has abandoned plans to break Labour’s manifesto pledge and raise income tax at this month’s Budget, it has been reported.
The chancellor had been expected to hike income tax in the face of a yawning gap in her spending plans, hinting as recently as Monday that the alternative would be “deep cuts” to public investment.
But the Financial Times has reported that she has now abandoned those plans over fears they could anger both voters and backbench Labour MPs.
The decision was communicated to the Office for Budget Responsibility (OBR) on Wednesday, when the chancellor submitted a list of “major measures” to be included in her Budget on November 26, according to the newspaper.
An income tax rise would help her bridge a fiscal black hole estimated by some economists to be as much as £50 billion, but it would also break Labour’s clear manifesto pledge not to raise income tax, national insurance or VAT.
The prospect of a manifesto breach drew criticism earlier this month from Labour’s new deputy leader Lucy Powell, who said it would damage “trust in politics”.
Having vowed not to return to “austerity” through deeper spending cuts, the Chancellor could now have to rely on increases in a wider range of smaller taxes if she is to stick to her self-imposed rules on debt and borrowing.
The Financial Times suggested that one option would also be to reduce income tax thresholds while keeping tax rates the same, which could raise billions of pounds for the Treasury.
Ms Reeves began November with a speech in which she failed to rule out an income tax hike, having previously said that Labour would stick to its manifesto commitments.
On Monday she told the BBC that sticking to those commitments “would require things like deep cuts in capital spending” that could harm productivity growth.
