Rachel Reeves expected to drop plans for income tax rise

Rachel Reeves has dropped plans to increase income tax rates at the Budget on 26 November, according to reports in the Financial Times.

The newspaper says the chancellor and prime minister U-turned on increasing the tax, which would have broken an election manifesto promise, over fears it would anger voters and Labour MPs.

Speaking to BBC Breakfast, Culture Secretary Lisa Nandy said “no decisions were made or set in stone” until Reeves delivered the Budget in the House of Commons.

A Treasury spokesperson said: “We do not comment on speculation around changes to tax outside of fiscal events.”

They added: “The chancellor will deliver a Budget that takes the fair choices to build strong foundations to secure Britain’s future.”

Reeves had not publicly confirmed she would raise income tax rates but had refused to rule it out.

Earlier this month, she also delivered a pre-Budget speech in which she emphasised the need to make “necessary choices” and warned that everyone would have to “contribute”.

If the chancellor has decided not to increase income tax rates, she will have to explore other ways to raise money, in order to meet her self-imposed rules for government finance.

She could still opt to extend a freeze on income tax thresholds, which is currently due to end in 2028.

In response to the reports, UK government bonds and the pound have come under pressure.

The yield on the benchmark 10-year government bond has risen 0.11% or 11 basis points – a very big move in a short time.

Sterling was also lower, falling 0.3% to 1.313 US dollars.

Asked about the reports, Nandy said “What I can tell you is as somebody who sits around that cabinet table, who has discussions with Rachel and has known her for a long time, is that she won’t play fast and loose with people’s money.

“She does take her promises seriously, and she will do everything that she can to make sure that those choices are the fairest possible choices.”