UK’s Starmer, Reeves ditch budget plan to increase income tax rates, FT reports

British Prime Minister Keir Starmer and finance minister Rachel Reeves have abandoned plans to raise income tax rates, changing course just weeks before the November 26 release of the government’s budget, the Financial Times reported on Thursday, citing officials briefed on the decision.

No such plan had been publicly unveiled ahead of the budget, but Reeves is expected to raise tens of billions of pounds in taxes to stay on track with her fiscal targets, a key issue for bond investors.

She is now exploring alternative ways to raise revenue to fill a fiscal hole that has been estimated at up to 30 billion pounds($40.26 billion), the FT reported.

Reuters could not immediately verify the report.

The Treasury and the Office for Budget Responsibility did not immediately respond to requests for comment.

Sterling dipped 0.3% after the report was published.

The FT said the decision to change plans, taken this week, was communicated to the Office for Budget Responsibility on Wednesday.

The National Institute of Economic and Social Research, a think tank, has urged Reeves to come up with 50 billion pounds’ worth of revenue-raising measures.

Starmer and Reeves have scrapped earlier plans to raise income tax rates due to concerns the move would anger voters and deepen tensions with discontented Labour lawmakers, the report said.

Reeves and Starmer said before last year’s election they would not raise taxes for “working people” including income tax, social security contributions and value-added tax. But on October 29, Starmer declined to commit to the pledge and said the economy was in a worse state than thought.

Earlier this week, Reeves told BBC radio that it would be “possible to stick with the manifesto commitments, but that would require things like deep cuts in capital spending.”

She also said she was working on both tax and spending measures in the budget, adding that she would not give more details ahead of November 26.