Labour mulls breaking tax pledge with income tax hike

Rachel Reeves, the Chancellor, is considering a bold and controversial move that could see Labour breach its 2024 manifesto commitments. Sources inside the Treasury indicate that a 2p rise in income tax is under serious consideration, even as party leadership shies away from repeating previous promises on taxes in parliament.

This potential shift would be the first increase in the basic rate of income tax since the 1970s. Among the options being reviewed is a simultaneous 2p cut in National Insurance paired with a 2p hike in income tax, a policy blueprint advocated by the Resolution Foundation and now gaining traction in Treasury circles. Figures suggest such a package would generate £6 billion for the public purse but would fall heavily on pensioners and landlords, who do not pay National Insurance. Workers who pay both taxes would likely see no overall increase in deductions, allowing Labour to present an argument that the effective burden on earners has not changed significantly.

Pressure is mounting on Reeves as a combination of abandoned welfare reforms, a reduced winter fuel payment cut, and negative productivity forecasts has left her seeking tens of billions in extra annual revenue. The government’s desire to maintain a larger fiscal buffer than the previous Chancellor’s £10bn reserve only adds to this imperative. The final decision will be revealed during the Budget announcement scheduled for 26 November, with the Office for Budget Responsibility due to update public finance projections in the coming weeks.

Sir Keir Starmer faced sustained questioning during Prime Minister’s Questions, pressed by Kemi Badenoch, the Conservative leader, on whether tax pledges would hold. Starmer refrained from giving a categorical answer, instead emphasising improvements in economic indicators such as inflation and market performance. Downing Street subsequently declined to confirm that statutory commitments on taxation would remain intact.

The mood within Labour is tense. Many MPs are wary of forsaking explicit manifesto promises, mindful of polling that reveals widespread public distrust. Detractors within the party warn that breaking faith with voters risks deepening disaffection with politics.

For opposition figures, this shift has become a weapon. Badenoch has accused the government of reneging on its word, urging Reeves to resign if she reneges on the tax pledge. Business leaders and Tory opponents alike argue that further tax hikes will place additional strains on growth and employment, with warnings that businesses are already bracing for reduced private sector activity.

While speculation continues, all eyes now turn to the Budget, where Reeves and Starmer must balance political credibility with the need to plug a growing funding gap. Labour’s leadership faces a critical test as it weighs manifesto honour against the realities of economic stewardship.