Rachel Reeves Faces Pressure to Break Tax Pledge in Budget

Published: 24 October 2025. The English Chronicle Desk. The English Chronicle Online.

Chancellor Rachel Reeves is reportedly weighing a potential increase in income tax in her forthcoming Budget, a move that would mark a major departure from one of Labour’s central manifesto commitments. According to sources cited by The Guardian, Reeves may be considering this course of action to address a looming shortfall in public finances estimated to be between £30 billion and £50 billion.

The prospect of raising income tax has reportedly caused tension within the Treasury and No 10. While some advisers caution that breaking such a prominent election pledge could provoke political backlash, others argue it may be the only way to ensure that future tax rises are avoided for the remainder of the parliamentary term. Before the last general election, Labour had explicitly promised no tax increases for working people, and any deviation from this would represent a significant political risk for the party.

One source familiar with Treasury discussions suggested that officials are debating a range of approaches to raising additional revenue. The basic rate of income tax could see an increase of 1p, which would generate over £8 billion. In parallel, there is speculation that higher earners could face increased rates, including the higher and additional income tax bands, which would provide comparatively smaller sums—around £2 billion and £230 million—affecting those with annual earnings above approximately £50,000 and £125,000, respectively.

Senior officials indicate that a central point of debate is the degree of “headroom” Reeves wants to incorporate into the budget. Some advisers suggest that more ambitious planning could allow the government to secure enough funding to avoid repeated tax hikes while potentially creating space for tax reductions before the next budget. “There is a very live debate going on right now among those planning the budget about how bold we want to be on the headroom,” one Treasury source told The Guardian. “No one wants it to be £10 billion again, but there is an argument that we go much higher. This might mean we don’t have to return to the public for further adjustments and could allow flexibility for cuts later.”

Despite these internal discussions, a Treasury spokesperson emphasized that the government does not comment on speculation regarding potential tax changes. Reeves herself, when questioned earlier this month, reiterated her commitment to the party’s manifesto pledges. “Because working people experienced in the last Parliament the worst-ever living standards in any Parliament. But worse than that, living standards were actually lower at the end of the last Parliament than they were at the beginning,” she said, underlining Labour’s previous stance on protecting workers from tax increases.

Analysts note that the potential income tax hike reflects broader fiscal pressures facing the UK government. Public finances have been under significant strain due to rising borrowing costs, funding pressures on public services, and post-pandemic economic adjustments. Increasing income tax, while politically sensitive, may be seen by Treasury advisers as a pragmatic measure to stabilize public finances without resorting to multiple rounds of revenue-raising measures.

In addition to potential income tax changes, reports suggest that certain professional groups, including lawyers, GPs, and accountants, could face targeted measures aimed at raising additional revenue. One proposed initiative involves a new charge on workers operating through limited liability partnerships (LLPs), which could generate approximately £2 billion. The UK currently hosts 355,760 partnerships, with around 86,030 of these employing staff. Unlike conventional employers, LLPs do not pay the 15 percent employer’s national insurance, and partners benefit from lower employee national insurance contributions. The Treasury’s proposals to adjust this tax treatment may form part of a wider strategy to raise revenue without directly increasing taxes on ordinary working individuals.

Political commentators suggest that any income tax increase would have both short-term and long-term ramifications for Labour. In the immediate term, breaking a manifesto pledge risks alienating core supporters and providing ammunition for opposition parties, particularly the Conservatives, who are likely to frame the move as a betrayal of working-class voters. Longer-term implications could include shifts in public perception around Labour’s economic credibility and fiscal responsibility, as voters weigh the party’s need to balance public finances against its electoral commitments.

The debate within the Treasury reflects a broader tension in UK politics between fiscal prudence and electoral promises. Some advisers argue that the current funding gap is so substantial that delaying action or relying solely on efficiency savings and spending cuts would be insufficient to maintain public services and avoid borrowing increases. In this context, raising income tax—even at the risk of political controversy—may be framed internally as a necessary step to prevent even larger interventions in the future.

The proposal to raise the basic rate by 1p would affect millions of working taxpayers, while increasing higher and additional rates would target those on significantly higher incomes. Economists argue that, in isolation, such measures would generate meaningful sums for the Treasury, though they may not entirely bridge the projected £30–50 billion deficit. The debate over which rates to adjust highlights the delicate balance the government must strike between raising revenue and maintaining public trust.

Some opposition voices have already expressed concern over the possibility of income tax changes. Critics argue that such moves could undermine public confidence in Labour’s commitment to its promises and lead to voter disillusionment. Others suggest that a more targeted approach, such as adjusting the tax treatment of LLPs or implementing sector-specific charges, could help generate revenue while minimizing political backlash.

Despite these concerns, the Treasury’s deliberations appear to be focused on ensuring long-term fiscal stability. Sources indicate that some advisers see merit in a more comprehensive approach to budget planning, allowing the government to consolidate revenue sources and avoid repeated interventions that could erode public confidence.

As the UK approaches the Budget announcement next month, attention will be on how Reeves balances these competing pressures. Will she adhere strictly to manifesto commitments, or will fiscal necessity compel a significant policy shift? The debate reflects the broader challenges faced by the current government: addressing substantial budgetary pressures while maintaining credibility and public trust, particularly in a political climate characterized by heightened scrutiny and intense media coverage.

The potential income tax rise also raises questions about fairness and equity. Labour must consider how changes will affect different income groups and whether targeted adjustments to higher earners or specific professional arrangements, like LLPs, provide the most politically and economically sustainable solution. The government will need to communicate any changes effectively to avoid public perception of broken promises, while also demonstrating a clear plan for addressing the funding gap.

Reeves’ deliberations underscore the tension inherent in balancing political pledges with economic reality. With estimates of the UK’s fiscal shortfall reaching tens of billions of pounds, the upcoming Budget may well be defined by how the Chancellor chooses to navigate this difficult landscape. Analysts and voters alike will be watching closely to see whether Labour can reconcile its manifesto commitments with the fiscal imperatives of governance.