Rachel Reeves is understood to have scrapped plans to break Labour’s manifesto and hike income tax in the forthcoming Autumn Budget.
The Chancellor was poised to hike income tax by 2p whilst cutting national insurance by the same amount in a move that would break Labour’s pledge to not raise taxes on ‘working people.’
Over the last few weeks, senior government figures on media rounds have pointed to a retreat from the commitments as Reeves faces a £30bn black hole in public finances.
But now the first set of Budget proposals sent to the UK fiscal watchdog – including an income tax increase – have been kicked to the curb, effectively sending Reeves back to the drawing board.
The move, which was first reported by the Financial Times, leaves Reeves with fewer options to strum up a hefty cash number from one general rate increase.
Instead, signs are now pointing to a number of tax hikes to specific areas such as gambling and expensive properties.
The renewed uncertainty surrounding the Treasury’s agenda follows business leaders up and down the country warning the Chancellor months of Budget nerves had damaged consumer confidence and forced firms to hold off key investment decisions.
Income tax thresholds in picture
Another income tax option understood to be on the table is cutting thresholds at which people pay different rates, whilst leaving the headline basis and higher rates unchanged.
The move would come when Reeves is already poised to extend a freeze on personal tax thresholds, in a move expected to raise between £8bn and £10bn.
However, cutting the personal tax thresholds could add another few billion to the public purse.
It would also follow Reeves departing Downing Street with her diary on display and the word “thresholds” used to describe a meeting.
The income tax row has stirred up trouble for Labour with new deputy leader of the Labour party Lucy Powell warning of the move’s impact on trust.
Ahead of the 2024 election, Labour promised to not raise national insurance, income tax or VAT.
Earlier this week, City AM revealed voters believe Reeves should be sacked if she breaks the commitment by hiking income tax.
The latest City AM/Freshwater Strategy poll showed that two thirds (66 per cent) of the UK electorate say that Reeves should quit if she chooses to raise income tax when she takes to the dispatch box on November 26.