Rachel Reeves is planning to raise income tax in the upcoming Autumn Budget, according to reports, as she bids to shift biggest tax rises onto the wealthiest.
The Times has reported that the chancellor has informed the Office for Budget Responsibility (OBR) that she intends to increase income tax as she looks to repair public finances.
A rise in income tax is one of the “major measures” Reeves is set to implement during the Budget, which is due to be announced on 26 November.
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The OBR will weigh up the new measures before reporting back to the Treasury next Monday (10 November).
Under the plans, Reeves intends to raise income tax by 2p while cutting National Insurance by the same amount for those earning less than £50,270. People earning more than this would still be subject to the 2 per cent rate to ensure that those with the “broadest shoulders” bear the biggest burden.
The idea is to target pensioners and landlords who generally do not pay National Insurance.
A 2p rise effectively means everyone paying income tax will pay an extra 2p for every £1 they earn in taxable income.
Combined with the national insurance cut, economists reckon the move could raise more than £6bn a year.
While the changes are aimed at taxing the wealthy, the move would be seen by some as Labour breaking their manifesto pledge not to increase taxes ahead of being elected into government.
The reported tax hike has led to some disharmony at the heart of the Labour party, with deputy leader Lucy Powell saying yesterday the party should stick to its manifesto pledges.
Speaking to BBC 5 Live, the MP for Manchester Central said: “We should be following through on our manifesto, of course. There’s no question about that.
“It’s really important we stand by the promises that we were elected on and that we do what we said we would do.”
She added: “If we’re to take the country with us then they’ve got to trust us.
“We want to make sure that ordinary working people are better off as a result of this Labour government and we’re putting more money back into the pockets of ordinary working people.
“That’s what that manifesto commitment is all about. And that’s what this Budget will be about I’m sure.”
However, in a statement released after the interview, Powell’s team affirmed her support for the chancellor and PM, noting that the “context” for this Budget was “particularly difficult”.
Economists have claimed that Reeves could need to raise taxes to total as much as £30bn in order to fulfil her financial rules by a comfortable margin.