Rachel Reeves to abandon plans to raise income tax rates in budget

"A source told the Guardian that plans to break the manifesto pledge on income tax had been ditched by the prime minister, Keir Starmer, and the chancellor. It comes after a week of extraordinary briefing wars in the party as allies of the prime minister suggested he would fight any leadership challenge, with some pointing to the health secretary, Wes Streeting, as a potential challenger, which he publicly denied."

"The bombshell tax U-turn, first reported by the Financial Times, was sent to the Office for Budget Responsibility on Wednesday. Downing Street did not deny the reports but said it would not comment on budget matters. Reeves had previously informed the budget watchdog of plans to raise income tax breaking one of Labour's key manifesto pledges. The FT reported Reeves may now look at thresholds at which people pay tax, which is likely to be seen as an income tax rise by stealth."

"Sources close to the chancellor had stressed her desire for significant headroom in the budget to avoid the swirl of speculation over whether she would breach the fiscal rules. Reeves and Starmer are now likely to rely on several smaller tax-raising measures in order to fill an anticipated multibillion-pound hole caused by a downgrade in productivity and U-turns on other policies including cuts to the winter fuel allowances and disability benefits."

Rachel Reeves abandoned plans to raise income tax and sent a revised package to the Office for Budget Responsibility. Downing Street declined to comment on budget matters. Reeves previously informed the budget watchdog of plans that would have broken Labour's manifesto pledge. She may instead adjust tax thresholds, a change likely to be seen as an income tax rise by stealth. Reeves and Prime Minister Keir Starmer plan to rely on several smaller tax-raising measures after a downgrade in productivity created a multibillion-pound hole. Potential measures include higher gambling levies and savings from cuts to winter fuel allowances and disability benefits, amid internal party briefing wars and leadership speculation.

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