UK Chancellor Rachel Reeves has abandoned plans to raise income tax rates, reversing weeks of preparation just days before the autumn Budget on November 26. The dramatic U-turn follows improved forecasts from the Office for Budget Responsibility that reduced the projected financial gap from £30 billion to around £20 billion.
The scrapped proposal would have increased the basic income tax rate by 2p for the first time in 50 years while cutting National Insurance by the same amount. The move would have broken Labour's pre-election manifesto pledge not to raise income tax rates and was expected to generate £6 billion annually.
Financial markets reacted nervously to the policy reversal. Government borrowing costs spiked by 0.12 percentage points for 10-year gilts on Friday after the Financial Times revealed the abandoned plan, though yields later stabilized.
Alternative measures under consideration
Reeves is now reportedly planning to extend the freeze on income tax thresholds by two additional years until 2030, which would raise an estimated £8 billion annually by pulling more workers into higher tax brackets. The Telegraph reports she may also introduce a new levy on high-value properties in London and the South East, potentially affecting 300,000 homes on top of existing council tax bills.
Health Secretary Wes Streeting told the BBC: «It is really important that we keep our promises and we stand by our manifesto. The fact that there's been speculation about income tax shows how difficult the situation is with public finances and secondly that the chancellor is determined to stick to her fiscal rules,»
Political backlash
Shadow Chancellor Mel Stride told the Daily Mail: «We are witnessing the most shambolic pre-Budget period in memory. The constant leaking, briefing and kite-flying is fuelling uncertainty and damaging our economy. Markets are unnerved and business confidence is at a record low. This is chaos on an industrial scale. We are becoming an economic laughing stock under Labour.»
Former Chancellor Sir Jeremy Hunt told Times Radio: «The whole world is reading this information and they're looking at British economic decision-making. And it looks very chaotic and I don't think that's a good thing.» A Treasury spokesperson said: «We do not comment on speculation around changes to tax outside of fiscal events.»
Note: This article was created with Artificial Intelligence (AI).
