Tax row erupts as Reeves tells watchdog she will break manifesto
The Labour government is split in a fresh tax row after Rachel Reeves reportedly told the fiscal watchdog she will raise income tax in her forthcoming Autumn Budget – a move that will break a key manifesto pledge.
The Chancellor is said to have informed the Office for Budget Responsibility that an increase to income tax will be on the cards when she unveils her plans on November 26.
But Labour’s new deputy leader Lucy Powell has caused friction within the party, stating the government “should be following through” on its manifesto pledges.
Ahead of the 2024 election, Labour promised to not raise taxes on ‘working people‘ – which covered a hike to national insurance, income tax or VAT.
Powell said such a move would damage “trust in politics” and cause more issues for the Prime Minister and Chancellor.
Reeves’ proposal is included in the government’s official submission to the OBR, according to The Times, offering the starkest revelation yet that Reeves will fall back on Labour’s manifesto.
In her speech on Tuesday, the Chancellor was viewed as priming Brits for a tax raid earlier this year after stating everybody would have to “contribute” to fix the economy.
“If we are to build the future of Britain together, we will all have to contribute to that effort. Each of us must do our bit for the security of our country and the brightness of its future,” she said.
Reeves’ £30bn headache
It comes as Reeves is expecting to be staring down a fiscal black hole of near £30bn after her buffer of £9.9bn was quickly eroded following the Spring Statement.
As part of the move to raise income tax by 2p, Reeves is also anticipated to make a 2p cut national insurance in attempt to shift the financial burden. However, only earners on under £50,000 would benefit from the NI reduction.
The move would also hit pensioners and landlords with economists expecting it to add near £6bn to the public purse.
Research from Quilter revealed Brits earning more than £75,000 could pay thousands of pounds more in tax in the event of a 2p income tax rise.
Earners above £100,000 would pay £998 more whereas those on annual income above £125,000 would have to cough up £1,745 more in each year.
Lower earners and those around the median wage would be protected from any change to their overall taxation levels.