Labour Faces Budget Dilemma as Reeves Urged to Break Manifesto Promises

Published: 04 October’ 2025. the English Chronicle Desk, English Chronicle Online

Chancellor Rachel Reeves is facing mounting pressure from within her own party to consider abandoning key manifesto pledges in the run-up to the November budget, amid warnings that sticking rigidly to them could result in a “pasty tax” scenario—an unpopular mix of minor revenue-raising measures that risk political backlash. Sources close to Downing Street have confirmed that as the Office for Budget Responsibility (OBR) presented its first fiscal forecast to the Treasury on Friday, tensions flared among ministers and senior officials over how to balance the books without breaching the promises made to voters.

Labour’s manifesto prior to taking office last year contained firm commitments not to increase national insurance, value-added tax, or income tax, which collectively account for roughly three-quarters of UK tax revenue. While Reeves remains steadfast in her dedication to these pledges, some colleagues have expressed concern that adherence may limit her ability to raise the necessary funds, particularly as the OBR’s growth forecasts have recently been revised downward.

An insider familiar with the pre-budget discussions noted, “There’s a political risk that No 10 is increasingly worried about, that we’re dying a slow death by the manifesto pledges, and the budget will look like a hodgepodge.” Despite these warnings, Reeves has reportedly resisted instructions to cost alternative tax measures that would breach manifesto commitments, signaling her intent to maintain political consistency even under fiscal pressure.

The OBR’s latest projections highlight the scale of the challenge. The forecast, which for the first time includes projections for tax and spending, suggests that the government could face a £20 billion to £40 billion shortfall relative to the £10 billion headroom Reeves had anticipated in the spring. This gap reflects higher borrowing costs, growth downgrades, and adjustments to previously planned welfare and winter fuel policies. Treasury sources indicate that officials are exploring ways to mitigate the deficit, including persuading the OBR to account for the pro-growth impact of certain government policies, though details remain closely guarded.

Meanwhile, Labour’s chief secretary, Darren Jones, added to the internal debate by signaling at the party conference that manifesto commitments are “still standing because decisions haven’t been taken yet,” a notably softer stance than the Treasury has publicly maintained. Analysts interpret this as an indication of the ongoing tension between political promises and fiscal realities.

Broad-based tax increases, such as a one-pence rise in income tax rates or employee national insurance contributions, could each generate between £7 billion and £8.5 billion in additional revenue, according to Treasury estimates. Raising VAT, however, remains politically sensitive due to its direct impact on inflation, which is already above the Bank of England’s 2 percent target. Fuel duty, frozen since 2011-12, is another contentious option. Reintroducing its link to inflation could yield £5 billion by 2029-30 but risks negative media portrayal, particularly in right-leaning outlets framing it as an attack on the “white-van man.”

Other potential revenue measures under consideration include taxing landlords’ rental income, levying capital gains tax on wealthy individuals relocating abroad, and limiting tax relief on pensions. The common theme in these proposals is their piecemeal nature, which has drawn comparisons to the infamous “pasty tax” of 2012, when George Osborne faced backlash for attempting minor VAT changes on takeaway foods and static caravans. Senior Labour strategists have suggested that more straightforward, broad-based tax measures would be politically easier to defend than a collection of smaller tweaks.

Complicating the debate is the party’s desire to maintain business confidence while implementing fiscal policy. Large firms have reportedly indicated a preference for major, clearly defined tax increases over multiple smaller ones, highlighting the tension between electoral optics and economic pragmatism. Meanwhile, Minouche Shafik, Starmer’s chief economic adviser, is understood to have conducted a zero-based review of all potential budget options, including broader tax increases, in order to identify viable solutions to the anticipated shortfall.

Fiscal reform advocates have also voiced their perspectives. Andy Summers, director of the Centre for the Analysis of Taxation, argued at a fringe event during the Labour conference that the manifesto’s strictures on main tax rates could encourage a “hard thinking” approach to structural reform of the tax system. Nevertheless, insiders acknowledge that the budget is likely to feature a mix of smaller, incremental measures, as time constraints and political sensitivities limit the scope for sweeping changes.

As Reeves prepares to present the November budget, the balancing act between political promises, fiscal responsibility, and public perception is becoming increasingly complex. Treasury sources emphasized that the OBR’s forecasts are only part of the equation and cautioned against speculation about the government’s final decisions. The ultimate challenge will be delivering a budget that raises sufficient revenue while remaining true to Labour’s commitments and navigating the potential political fallout from voters and the business community alike.