UK Government Unexpectedly Halts Income Tax Rise Amid Budget Pressure
Chancellor Rachel Reeves abandons plan to increase basic income tax rate ahead of November 26 budget
In a striking policy reversal, Chancellor Rachel Reeves has reportedly abandoned plans to raise the UK’s basic income tax rate in the upcoming autumn budget.
The decision marks a significant departure from expectations and removes a key lever originally thought likely to be used to fill the nation’s fiscal gap.
The proposed rise would have made Reeves the first Chancellor in about fifty years to raise the basic rate of income tax.
Officials now say the measure has been shelved, with the government instead exploring a package of smaller tax increases, including adjustments to tax thresholds, levies on gambling, and higher property-related taxes.
Markets responded with concern.
The pound fell approximately 0.4 per cent to $1.3137, and the yield on ten-year UK government bonds rose by 0.13 percentage points to 4.57 per cent, indicative of investor unease over the clarity and credibility of the government’s fiscal strategy.
The reversal follows intense pressure within the ruling Labour Party, where many MPs were uneasy about breaking the manifesto pledge of not raising income tax on working people.
Media reports say internal dissent and a leadership debate prompted the chancellor to change course.
Reeves is said to have communicated the decision this week to the independent Budget watchdog.
Despite the U-turn, Reeves remains under mounting fiscal strain: recent Office for Budget Responsibility updates suggest the government must find headroom of up to £30 billion, owing to weaker productivity growth and rising debt servicing costs.
Analysts warn that relying on multiple smaller tax hikes may complicate an already crowded fiscal landscape and could weigh on economic growth.
As the November 26 budget draws near, attention now shifts to the alternative measures Reeves will unveil and whether the government can restore market confidence without the headline tax increase initially envisaged.
The decision marks a significant departure from expectations and removes a key lever originally thought likely to be used to fill the nation’s fiscal gap.
The proposed rise would have made Reeves the first Chancellor in about fifty years to raise the basic rate of income tax.
Officials now say the measure has been shelved, with the government instead exploring a package of smaller tax increases, including adjustments to tax thresholds, levies on gambling, and higher property-related taxes.
Markets responded with concern.
The pound fell approximately 0.4 per cent to $1.3137, and the yield on ten-year UK government bonds rose by 0.13 percentage points to 4.57 per cent, indicative of investor unease over the clarity and credibility of the government’s fiscal strategy.
The reversal follows intense pressure within the ruling Labour Party, where many MPs were uneasy about breaking the manifesto pledge of not raising income tax on working people.
Media reports say internal dissent and a leadership debate prompted the chancellor to change course.
Reeves is said to have communicated the decision this week to the independent Budget watchdog.
Despite the U-turn, Reeves remains under mounting fiscal strain: recent Office for Budget Responsibility updates suggest the government must find headroom of up to £30 billion, owing to weaker productivity growth and rising debt servicing costs.
Analysts warn that relying on multiple smaller tax hikes may complicate an already crowded fiscal landscape and could weigh on economic growth.
As the November 26 budget draws near, attention now shifts to the alternative measures Reeves will unveil and whether the government can restore market confidence without the headline tax increase initially envisaged.
