Reeves Faces Criticism as Income Tax Reversal Prompts Budget Scrutiny

Chancellor Rachel Reeves’s decision to reverse planned income tax hikes has ignited a political dispute and raised questions about the transparency of the United Kingdom’s fiscal process. The reversal arrives amid mounting speculation over Prime Minister Sir Keir Starmer’s leadership and pressure from both the opposition and within government circles.

The controversy centres on claims that improved economic forecasts from the Office for Budget Responsibility, or OBR, provided the rationale for shelving a proposed increase in the basic rate of income tax. The resolution to abandon the rise reportedly followed updated forecasts indicating a £10 billion reduction in the public finance gap, but the timing of the decision has drawn scepticism from rival parties and economic commentators.

Sir Mel Stride, the shadow chancellor, has called for the OBR to clarify when its final economic forecasts were delivered and how these influenced the Chancellor’s decisions. According to the OBR’s published timetable, the most recent comprehensive forecast was provided on 31 October. Questions have been raised as to whether subsequent government policy announcements have relied on additional, undisclosed updates.

Market reaction has been volatile. Initial reports of a reversal in the income tax policy caused a spike in gilt yields, spurring concerns among investors regarding the stability of government finances. Treasury officials maintain that the revision in tax plans directly resulted from improved OBR figures, despite the continuing debate around the sequence of events and the openness of official communications.

The withdrawal of the income tax hike leaves the government seeking alternative sources of revenue to meet existing fiscal rules. Proposals under consideration include the continued freezing of income tax thresholds, higher property taxes, increased levies on banks and gambling enterprises, and the introduction of new taxes on electric vehicles. Raising the necessary £25 billion is expected to require a broad package of measures, some of which remain unconfirmed as officials work to finalise the Budget.

Analysts and former officials have expressed concern over both the handling of the policy announcement and the potential implications for market confidence. Lord Burns, a former Treasury permanent secretary, criticised the decision to publicly entertain and then abandon the income tax increase, suggesting it undermined trust in the Budget process. Recent data from the British Retail Consortium indicates consumer confidence has deteriorated in recent weeks, underscoring the broader impact of fiscal uncertainty.