Chancellor Rachel Reeves has abandoned plans to raise income tax in this month’s Budget, backing away from what would have been a dramatic break with Labour’s manifesto pledge after warnings it risked sparking a backlash among MPs and voters.
According to officials briefed on the decision, Reeves and Prime Minister Sir Keir Starmer have “ripped up” the proposal, which had been included in the Chancellor’s initial submission of “major measures” to the Office for Budget Responsibility earlier this month. The U-turn, first reported by the Financial Times, was communicated to the OBR only this week.
Reeves had appeared to signal an income tax rise at a press conference last week, fuelling speculation that Labour was preparing to raise both the basic and higher rates. However, concerns that such a move would anger already restless backbenchers — and alienate voters facing rising living costs — prompted a rapid rethink.
Instead of a single high-profile tax rise, Reeves is now expected to pursue what Treasury insiders describe as a “smorgasbord” approach: a series of narrowly targeted tax measures designed to raise the £30 billion needed to fill the gap in the public finances. Options likely to feature include a new gambling levy and increased taxes on high-value properties.
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