What's behind Rachel Reeves's 'hokey cokey' on income tax rises?

"That plan, to raise income tax rates by 2p but compensate workers with a 2p National Insurance cut was sent to the OBR as an option earlier this month to be costed, to help fill what was then a 30bn gap in the public finances, mainly caused by a downgrade to productivity. The so-called "2 up, 2 down" plan, pioneered by the Resolution Foundation think tank, would have raised several billion pounds, mainly from non-wage income such as landlords and savings."

"Newer assessments from the OBR appear to have increased the projected strength of wages and tax receipts in the coming years and offset several billion pounds of that gap, taking it closer to 20bn in total. As a consequence, the plan to raise income tax rates has not been advanced in the latest set of measures sent to the OBR to analyse. While this "iterative" process is part of the normal forecasting round that precedes a Budget, on Monday of this week the chancellor suggested very strongly that tax rates would go up in a BBC interview."

Chancellor Rachel Reeves decided not to raise income tax rates after considering a 2p increase offset by a 2p National Insurance cut. The '2 up, 2 down' option was sent to the OBR to be costed to help close an estimated 30bn gap in the public finances caused mainly by a productivity downgrade. The proposal would have raised several billion pounds largely from non-wage income such as landlords and savings. Newer OBR assessments increased projected wages and tax receipts, narrowing the shortfall toward 20bn and removing the need to advance the income tax measure. Ministers stressed keeping manifesto promises and adherence to fiscal rules.

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