Chancellor Rachel Reeves signalled “necessary choices” in the upcoming Budget, refusing to rule out revisiting Labour’s manifesto pledge not to raise income tax, VAT or National Insurance. Pressed on a potential pledge breach, she said she was “setting the context”.
Her message: taxes are likely to rise, but specifics must wait. Reeves argued that weak productivity, policy mistakes by previous Conservative Governments, including Brexit, austerity, and cuts to infrastructure, as well as global inflation and uncertainty from new US tariffs, have worsened the outlook. She framed the Budget as “for growth, with fairness”, focused on reducing NHS waiting lists, debt and the cost of living.
Some in Government prefer a one-time approach that raises several billion pounds now, potentially through increased income tax rates. Yet lifting the introductory rate would be unprecedented for 50 years and politically risky given low trust in politics and in Sir Keir Starmer.
The Prime Minister told Labour MPs that the Government would take “tough but fair” decisions for the long term. Independent voices are adding pressure: the Resolution Foundation argues that avoiding changes to VAT, NI, or income tax would be harmful, floating an income tax rise offset by a 2p cut to employee NI, plus extending frozen tax thresholds.
The OBR is expected to downgrade productivity, which could open a £20bn gap to meet Reeves’s fiscal rules: no borrowing for day-to-day spending and debt falling by the end of this Parliament. Reeves wants more “headroom” after U-turns eroded it; think-tanks say £20bn would steady markets and reduce borrowing costs.
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