Budget 2025: Starmer and Reeves ditch plans to raise income tax

Sir Keir Starmer and Rachel Reeves have scrapped plans to break their manifesto pledge and raise income tax rates in a massive U-turn less than two weeks from the budget.

The decision, first reported in the Financial Times, comes after a bruising few days which has brought about a change of heart in Downing Street.

Read more: How No 10 plunged itself into crisis

I understand Downing Street has backed down amid fears about the backlash from disgruntled MPs and voters.

The Treasury and Number 10 declined to comment.

The decision is a massive about-turn. In a news conference last week, the chancellor appeared to pave the way for manifesto-breaking tax rises in the budget on 26 November.

She spoke of difficult choices and insisted she could neither increase borrowing nor cut spending in order to stabilise the economy, telling the public "everyone has to play their part".

The decision to backtrack was communicated to the Office for Budget Responsibility on Wednesday in a submission of "major measures", according to the Financial Times.

The chancellor will now have to fill an estimated £30bn black hole with a series of narrower tax-raising measures and is also expected to freeze income tax thresholds for another two years beyond 2028, which should raise about £8bn.

Tory shadow business secretary Andrew Griffith said: "We've had the longest ever run-up to a budget, damaging the economy with uncertainty, and yet - with just days to go - it is clear there is chaos in No 10 and No 11."

How did we get here?

For weeks, the government has been working up options to break the manifesto pledge not to raise income tax, national insurance or VAT on working people.

I was told only this week the option being worked up was to do a combination of tax rises and action on the two-child benefit cap in order for the prime minister to be able to argue that in breaking his manifesto pledges, he is trying his hardest to protect the poorest in society and those "working people" he has spoken of so endlessly.

But days ago, officials and ministers were working on a proposal to lift the basic rate of income tax - perhaps by 2p - and then simultaneously cut national insurance contributions for those on the basic rate of income tax (those who earn up to £50,000 a year).

That way the chancellor can raise several billion in tax from those with the "broadest shoulders" - higher-rate taxpayers and pensioners or landlords, while also trying to protect "working people" earning salaries under £50,000 a year.

The chancellor was also going to take action on the two-child benefit cap in response to growing demand from the party to take action on child poverty. It is unclear whether those plans will now be shelved given the U-turn on income tax.

Read more: What taxes could go up now?

The change of plan comes after the prime minister found himself engulfed in a leadership crisis after his allies warned rivals that he would fight any attempted post-budget coup.

It triggered a briefing war between Wes Streeting and anonymous Starmer allies attacking the health secretary as the chief traitor.

Read more: Is Starmer 'in office but not in power'?

The prime minister has since apologised to Mr Streeting, who I am told does not want to press for sackings in No 10 in the wake of the briefings against him.

But the saga has further damaged Sir Keir and increased concerns among MPs about his suitability to lead Labour into the next general election.

Insiders clearly concluded that the ill mood in the party, coupled with the recent hits to the PM's political capital, makes manifesto-breaking tax rises simply too risky right now.

But it also adds to a sense of chaos, given the chancellor publicly pitch-rolled tax rises in last week's news conference.

(c) Sky News 2025: Budget 2025: Starmer and Reeves ditch plans to raise income tax