Labour Scraps Income Tax Rises Opts for Targeted Levies in November Budget

Sir Keir Starmer and Rachel Reeves have abandoned plans that would have broken Labour’s manifesto pledge not to increase income tax rates in the forthcoming budget. Senior officials indicated that both the basic and higher rates of income tax will remain unchanged, following internal concerns that any deviation might provoke discontent among MPs and voters. This policy shift was closely coordinated with the Office for Budget Responsibility, which was formally notified of the decision this week.

Expectations had mounted after Reeves signalled possible tax rises during a recent press conference. However, the government has now confirmed a change of course, instead favouring a strategy described as a “smorgasbord” of more narrowly targeted taxes. This approach will seek to boost public finances by an estimated £30 billion, avoiding direct income tax increases.

Likely measures include a levy on gambling as well as higher taxes on high-value property. Plans for a substantial tax increase on professional partnerships, which would have affected lawyers, accountants, and some private doctors, have been dropped after Treasury analysis suggested behavioural changes would reduce the projected revenues. The government initially hoped to raise approximately £2 billion annually from this move, but concluded the measures risked costing more than they would deliver.

There is also significant uncertainty regarding proposals for a so-called settling-up charge on the assets of wealthy individuals who relocate abroad. The scheme could have imposed up to a 20 percent levy on retained UK assets, potentially raising government revenue but sparking concerns over its impact on investment and growth, particularly in technology sectors. Government sources indicated that the charge is now unlikely to proceed.

An alternative under review was a 2 pence increase in income tax alongside a 2 pence reduction in National Insurance. This shift would have changed the tax burden from workers to other groups such as pensioners and landlords, potentially raising over £6 billion. More likely is an extension of the freeze on income tax thresholds, which the Institute for Fiscal Studies has described as a stealth tax. Analysis suggests that continuing the freeze until 2030 would result in 10.1 million people, or one in five adults, entering the higher tax bracket, raising £8.3 billion but drawing in an additional 790,000 higher-rate taxpayers, and affecting millions of pensioners by pushing the state pension above the tax threshold.

Labour’s manifesto committed not to increase income tax, National Insurance, or VAT. Despite earlier suggestions of potential changes, Rachel Reeves has decided to uphold these commitments, prioritising fiscal stability while introducing more targeted taxation measures in the upcoming budget.