Rachel Reeves Set to Break Labour Pledge and Raise Income Tax

Published: 04 November 2025 | The English Chronicle Desk | The English Chronicle Online

In a bold and politically charged move, Chancellor Rachel Reeves has signalled that she is prepared to raise income tax, breaking a major Labour manifesto pledge, as she prepares her upcoming Budget later this month. Speaking from Downing Street on Tuesday morning, Reeves made it clear that the government would prioritise economic stability and the national interest over political convenience — a statement that has sent ripples through both Westminster and the financial markets.

The announcement comes just weeks before her first full Budget on November 26, and marks a decisive turning point for Labour’s economic strategy. The Chancellor hinted at an increase of between 1p and 2p in income tax, despite the party’s 2024 manifesto promise not to raise the basic, higher, or additional rates of income tax, National Insurance, or VAT.

In her speech, Reeves addressed the public directly, stating: “As I take my decisions on both tax and spend, I will do what is necessary to protect families from high inflation and interest rates, to protect our public services from a return to austerity, and to ensure that the economy we hand down to future generations is secure with debt under control. 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.”

Her words, though measured, left little doubt about the government’s intention to increase tax revenues to fill what officials have described as a “significant financial black hole.” Economists estimate that the Chancellor will need to raise several billion pounds to offset increased debt interest payments and to reverse cuts in welfare spending.

Reeves’s decision is not just a fiscal one — it is a major political gamble that could define her tenure and shape the Labour government’s credibility. The Labour manifesto had been explicit: “Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of income tax, or VAT.”

Breaking such a promise so early in the administration could expose the government to charges of betrayal from both the public and the opposition. The political memory of broken pledges runs deep in British politics. In 1993, Conservative Chancellor Lord Lamont increased taxes despite a promise not to, contributing to the Tories’ crushing defeat in the 1997 general election. Similarly, in 2010, Nick Clegg’s decision to raise tuition fees — against the Liberal Democrats’ own manifesto commitment — inflicted long-term electoral damage on his party.

Despite this, Reeves insists that extraordinary times call for difficult choices. “As Chancellor, I have to face the world as it is, not as I wish it to be,” she said. “When challenges come our way, the only question is how to respond to them, not whether to respond. My focus at the Budget will be on getting NHS waiting lists down, lowering the cost of living, and reducing the national debt.”

The Chancellor’s speech made clear that she intends to avoid raising VAT, citing already high food and energy prices. Similarly, she expressed caution about increasing employers’ National Insurance contributions, noting that such a move could burden businesses and harm job growth.

Instead, Reeves is reportedly leaning towards a modest but broad-based income tax increase. A 1p to 2p rise could generate an estimated £6 billion in additional revenue — a figure that may help stabilise the UK’s debt trajectory while funding public services without deep spending cuts.

According to The Telegraph, officials drawing up the Budget have discussed a potential 2p rise in income tax rates, paired with a 2p reduction in employees’ National Insurance contributions. Such a move would allow the government to argue that the overall burden on 30 million working people remains unchanged, thereby maintaining — at least technically — the spirit of its manifesto promise.

However, the move would still represent a significant shift in the UK’s tax structure, particularly affecting pensioners and landlords, who pay income tax but not National Insurance. Critics argue that this would unfairly target those groups while leaving others relatively untouched.

If implemented, Reeves would become the first Chancellor in nearly half a century to raise the basic rate of income tax — a politically risky but potentially stabilising move for the national economy.

Reeves has been quick to attribute the current fiscal challenges to a combination of factors inherited from previous governments, including years of austerity, what she described as a “rushed Brexit,” the lingering economic effects of the Covid-19 pandemic, and increased defence spending amid global instability.

“Successive governments have failed to make the hard choices,” she said, suggesting that her administration would not repeat those mistakes. “We will not allow our public services to slide back into austerity, nor will we let inflation spiral out of control. That is why we must act responsibly now.”

The Chancellor’s comments reflect concern about bleak productivity forecasts from the Office for Budget Responsibility (OBR) and “heightened global uncertainty,” including geopolitical tensions and volatile energy markets.

With inflation stubbornly above the Bank of England’s target and interest rates remaining high, Reeves emphasised that her Budget would be designed to “get inflation falling and create the conditions for interest rate cuts.” Her aim, she said, is to “support economic growth and improve the cost of living.”

The opposition was quick to pounce on Reeves’s remarks. Conservative leaders accused her of “economic mismanagement wrapped in political hypocrisy,” with one senior Tory MP claiming that “Labour’s honeymoon with the electorate is already over.” Reform UK leader Nigel Farage also criticised the move, calling it “a betrayal of working Britons.”

However, some economists and policy experts have defended Reeves’s approach, arguing that fiscal realism is preferable to populist promises. “Raising income tax, though unpopular, is economically prudent given the state of the public finances,” said Dr. Simon French, an economist at Panmure Gordon. “It’s politically risky but fiscally necessary.”

Others pointed to the possibility that Reeves’s tax rise could be paired with targeted tax reliefs elsewhere, such as cuts to National Insurance or increased support for first-time buyers and small businesses, in order to soften the political blow.

Rachel Reeves’s rise to the Chancellorship was marked by her reputation as a cautious and pragmatic economist — a leader who prefers sober analysis to ideological posturing. But this Budget will be her defining moment, testing both her political instincts and her ability to persuade the public that fiscal discipline and fairness can coexist.

As she prepares to deliver her Budget on November 26, all eyes will be on how the markets react and whether the British public — weary after years of economic turbulence — will accept yet another round of financial sacrifices.

For Reeves, the stakes could not be higher. If she can steer the country through this economic storm while maintaining trust in Labour’s stewardship, she could cement her reputation as a transformative Chancellor. But if the public perceives her as having broken faith too soon, it could haunt her government for years to come.