Keir Starmer and Chancellor Rachel Reeves have reportedly ditched plans to break their manifesto pledge and raise income tax rates in a major U-turn less than two weeks from the budget.
This decision, which was first brought to light in the Financial Times, follows a turbulent few days which has brought a change of heart in Downing Street.
The conclusion is a complete U-turn: only last week, the chancellor appeared to pitch-roll manifesto-breaking tax rises in the budget.
She spoke of difficult choices and even insisted she could neither increase borrowing nor cut spending to stabilise the economy, telling the public “everyone has to play their part,” per Sky News.
The decision to drop the plans was communicated to the Office for Budget Responsibility on Wednesday in an agreement of “major measures”, as reported by the Financial Times.
Now, the chancellor will have to fill an estimated £30bn black hole with various narrower tax-raising measures as well as freezing income tax thresholds for another two years beyond 2028, which is believed to raise about £8bn.
It is also thought she will now have to use a number of smaller tax increases.
The news has prompted UK government bonds and the pound to come under pressure, with the yield on the benchmark 10-year government bond jumping by 0.11%.
Conservative leader Kemi Badenoch said: “Only the Conservatives have fought Labour off their tax-raising plans.
“But one retreat doesn’t fix a budget built on broken promises. Reeves must guarantee no new taxes on work, businesses, homes, or pensions – and she should go further by abolishing stamp duty.”
The change of plan comes after Starmer found himself immersed in a leadership crisis after his allies warned rivals that he would fight any attempted coup after the Budget announcement.
It triggered a briefing war between Wes Streeting and anonymous Starmer allies attacking the health secretary as the ‘chief traitor’, per Sky News.