Sir Keir Starmer and Rachel Reeves have abandoned plans to go back on their manifesto promise and increase income tax rates in a major reversal less than two weeks before the budget. The decision, first highlighted in the Financial Times, comes after a challenging period that has led to a change of heart in Downing Street.
I understand that Downing Street has retreated due to concerns about the potential backlash from disgruntled MPs and voters. The Treasury and Number 10 have chosen not to provide any comments on this matter.
This decision marks a significant U-turn. During a press conference last week, the chancellor seemed to be paving the way for tax hikes that would break the manifesto on November 26th budget.
She emphasized the tough choices ahead and emphasized that she could not resort to increasing borrowing or cutting spending to stabilize the economy. She stressed that «everyone has to play their part.»
The decision to reverse course was conveyed to the Office for Budget Responsibility on Wednesday through a submission of «major measures,» as reported by the Financial Times. The chancellor will now need to address an estimated £30bn deficit with a series of narrower tax-raising measures. Additionally, there are expectations that income tax thresholds will be frozen for an additional two years beyond 2028, potentially generating around £8bn.
Tory shadow business secretary Andrew Griffith remarked, «We’ve witnessed the longest run-up to a budget ever, causing economic damage with uncertainty. With just days remaining, the chaos in No 10 and No 11 is evident.»
Looking back, the government has been exploring options for breaching the manifesto pledge of not increasing income tax, national insurance, or VAT for working individuals. Just this week, I was informed that one of the options being considered was a combination of tax hikes and adjustments to the two-child benefit cap. This strategy would allow the prime minister to argue that while breaking manifesto pledges, he is making efforts to protect the most vulnerable in society and the «working people» he frequently mentions.
However, recent developments reveal that officials and ministers were contemplating lifting the basic rate of income tax, possibly by 2p, while simultaneously reducing national insurance contributions for those falling under the basic rate (earning up to £50,000 annually). This approach aims to generate several billion in tax revenue from higher-rate taxpayers, pensioners, or landlords, while safeguarding «working people» with salaries below £50,000. The chancellor was also planning to address the two-child benefit cap in response to calls from the party to tackle child poverty. It remains uncertain whether these plans will proceed following the U-turn on income tax.
The shift in strategy follows a period where the prime minister faced a leadership crisis, with his allies cautioning against any post-budget coup attempts. This situation sparked a briefing clash between Wes Streeting and anonymous Starmer allies, who criticized the health secretary as the primary traitor.
The prime minister has since apologized to Mr. Streeting, who reportedly does not intend to push for dismissals in No 10 following the negative briefings against him. However, this saga has further tarnished Sir Keir’s image and heightened concerns among MPs regarding his ability to lead Labour into the next general election.
Insiders have evidently concluded that the prevailing discontent within the party, combined with recent blows to the PM’s political standing, deems manifesto-breaking tax increases too hazardous at this point. However, this decision also contributes to a sense of disorder, given the chancellor’s public endorsement of tax hikes in the previous week’s press conference.
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