Rachel Reeves could break Labour’s manifesto pledge by hiking income tax at the upcoming Budget. The Chancellor is reportedly in discussions over abandoning the promise not to raise taxes for “working people” as she looks to fill a black hole of up to £50billion in her statement next month.
Some advisers in the Treasury and No 10 believe that increasing income tax is the only way to raise enough money to ensure she does not have to come back for more during this Parliament. But Ms Reeves is understood to fear a backlash after her National Insurance raid on employers last year. Discussions are said to have centred on how much headroom she wants to give herself, along with her goal of balancing day-to-day spending with tax revenues.
One source told The Guardian: “There is a very live debate going on right now among those planning the Budget about how bold we want to be on the headroom.
“No one wants it to be £10billion again, but there is an argument we go much higher, which will mean we don’t have to come back and do this again and might have space to cut taxes before the Budget.
“If we go down that route, however, it makes it more likely that we have to raise income tax – that is the discussion that is going on at the moment.”
Another said: “Rachel is understandably nervous, but there is a big desire for additional headroom. But we need a stronger argument about our purpose if we are going to make the case.”
A third source added: “The politics is bad either way. What matters, I think, is doing the right thing.”
The Chancellor last week suggested she would target the wealthy as part of her November 26 statement.
Ms Reeves insisted that those with the “broadest shoulders should pay their fair share of tax”.
Downing Street has insisted that Labour’s manifesto pledge not to raise VAT, income tax or National Insurance has not changed.
The Treasury was contacted for comment.