Sir Keir Starmer has paved the way for manifesto-busting income tax rises on working people in a major political gamble to allow him to spend cash on the NHS and boost growth.
The Prime Minister dropped his insistence on Wednesday that Labour’s promise not to raise income tax, national insurance or VAT “stands” as Downing Street sources argued that sticking to the pledge could mean a return to austerity.
Starmer refused to repeat the pledge, which has been a Labour mantra since the election, during Prime Minister’s Questions, as he blamed the previous Conservative government for worse-than-expected productivity forecasts leaving a black hole in the public finances.
The Prime Minister also refused to rule out extending the freeze on the personal tax allowance threshold, the so-called “stealth tax” which drags more earners into paying income tax
A Treasury source suggested to The i Paper that it means Starmer and Rachel Reeves are probably going to have to choose between breaking their tax pledge, or returning to austerity in the Budget on 26 November.
‘Clear choice between investment or cuts’
The PM’s official spokesman told reporters there was now a “clear choice” at the Budget between “investment and hope, or cuts and division”, in another shift in language.
A No 10 source said ministers had been “very clear” there would be “no return to austerity” and pointed out that Reeves has argued that Tory cuts to public services were a major driver of the productivity downgrade which has led to depressed economic growth.
They signalled that the Government has calculated that it must invest in public services to boost growth and improve the cost of living crisis.
“We are focused on investing in public services because that is key for productivity and that’s key for people’s livelihoods – growing the economy… the number one way to make people better off.
“And there will be no return to austerity because that’s exactly what’s hit productivity so hard in this country.”
According to a photo of her schedule, the Chancellor was believed to have had lunch with Labour MPs in the Commons tearoom following PMQs in what appeared to be a choreographed move to explain the shift.
Rachel Reeves leaving No11 this morning for PMQs forgot her must have folder, and one hears they have all had document training clearly not everyone was paying attention !! (quality crap as it was almost dark and raining) happy days (-; pic.twitter.com/WkLsQ49Nbi
— PoliticalPics (@PoliticalPics) October 29, 2025The schedule, posted online by the PoliticalPics account on X, showed the Chancellor was following lunch with a “Budget meeting” on “thresholds”, suggesting she was eyeing up extending the freeze on income tax thresholds beyond 2028, which would raise tens of billions of pounds.
Basic rate could rise by 1p
But Starmer and Reeves have also not denied speculation that they could seek to put 1p or more on income tax rates, with the basic rate also believed to be in play.
If Reeves is looking to tax rises alone to fill the black hole in the public finances and restore the £10bn “headroom” against her fiscal rule that day-to-day spending must be met by income and not borrowing, she may have to hike taxes by the equivalent of 3p on income tax.
No10 has previously said that she would target those with the “broadest shoulders” to fill the estimated £30bn gap in the nations finances.
This has led to speculation that should could hike only the higher rate, arguing that “working people” would be on the basic rate.
A 1p higher rate rise would only raise around £2.1bn according to the HMRC. A 1p rise on basic rate would bring in £8.2bn. Considering the political fall out of either choice, it is more likely the Chancellor would plump for gaining as much as possible for the pain involved.
During Prime Minister’s Questions Tory leader Kemi Badenoch attacked the Prime Minister over the state of the economy as he failed to say whether the Government would stick to its manifesto promises not to raise income tax, national insurance or VAT in the Budget.
He said: “The Budget is on the November 26, and we will lay out our plans, but I can tell the House now that we will build a stronger economy, we will cut NHS waiting lists and deliver a better future for our country.”
Badenoch replied: “If you work, they tax you more. If you save, they tax you more. If you buy a home, they tax you more. None of these taxes were in the manifesto, which he had four years to prepare.
The Prime Minister evaded a question on whether he could guarantee there would be no extension to the freeze on the personal allowance threshold.
He noted that the freeze was introduced by the Conservatives. It is due to end in April 2028.
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