Rachel Reeves needs to abandon the Government’s pledge not to raise income tax in order to get Britain’s finances on a sustainable path, a panel of top economists has warned.
In its manifesto at the last election, The Labour Party promised it would not increase taxes on “working people”, specifically national insurance (NI), the basic, higher, or additional rates of income tax, or VAT.
But with the economy flatlining and the Chancellor needing to find £30bn to balance her books in November’s Budget, leading experts have said it is “high time” the Government bit the bullet and raised income tax.
Reeves is expected to raise taxes by around £30bn in order to meet her self-imposed fiscal rules of ensuring day-to-day expenditure is met through taxation rather than borrowing.
But having ruled out increasing the rates of the three taxes that make up around two-thirds of Government receipts, she is being forced to be more creative.
Measures she is thought to be looking at instead include cutting pension tax relief and hiking so-called sin taxes on the likes of gambling and tobacco.
A panel of leading economists assembled by The i Paper has said that instead of “tinkering at the edges” and altering smaller taxes, the Chancellor should instead look to raise income tax, which they say will have the “least negative” impact on economic growth.
Willem Buiter, a former chief economist at Citigroup and ex-member of the Bank of England Monetary Policy Committee (MPC) said that a 3 percentage point increase to income tax rates would raise around £20bn for Reeves.
“It is high time for Labour to scrap its fiscal manifesto commitments. They never made sense. I think an equal increase in the basic rate, in the higher rate and in the additional rate [of income tax] would make sense,” he said.
Read Next
square INCOME TAXCut national insurance and hike income tax instead to raise £6bn, Reeves told
Read MoreStephen Millard, deputy director of the National Institute of Economic and Social Research (NIESR), said: “The Chancellor finds herself in a position where she needs to raise taxes at the next budget. But, given her commitment to not raise income tax, VAT or national insurance, she has left herself in a position where she either has to go back on this commitment or ‘tinker at the edges’.
“We think that now is not the time to do the latter. Rather the Chancellor should look to raise income tax – which has the least negative effect on growth of the three big taxes – to put the public finances back on to a firm footing and then lay out a tax reform agenda, which could help boost UK growth in the future.”
At its first Budget last October, Rachel Reeves opted to tweak a series of small taxes – such as widening the inheritance tax base – and also increase national insurance on employers.
But the rising cost of Government debt and also a u-turn on some spending cuts, including rowing back on benefit reforms that would have saved £5bn, has meant she will need to increase taxes again.
Currently, people in England, Wales and Northern Ireland pay 20 per cent income tax on earnings between £12,570 and £50,270. They pay 40 per cent on earnings between £50,270 and £125,000 and 45 per cent on earnings above this.
A 3p increase to the basic rate, as suggested by Buiter, would mean someone on an average salary of £35,000 paying around £56 extra per month income tax than they are paying currently.
The Chancellor cannot abandon her fiscal rules without risking a loss in confidence from the bond-market, which could lead to a run on bonds of the type that brought down Liz Truss.
Growing the economy is a key pledge of the Government, but having to raise tax in any form risks damaging growth. The international economic watchdog the OECD warned this week that the UK faces slower growth next year because of this.
square TRANSPORT Reeves to announce funding for delayed Northern Powerhouse Rail ahead of the Budget
Read More
But abandoning a manifesto pledge carries political risks as the Government will be attacked for doing so by the Tories and Reform and, at the next election, it will have difficulty convincing the electorate it will stick to its promises.
The challenge for Reeves would be whether a better economy and voters feeling richer – another key pledge Labour has made – would outweigh a broken promise at the ballot box.
Sir Charles Bean, ex-deputy governor of the Bank of England: “Given they don’t seem to be able to cut spending and Reeves has committed herself to sticking to her fiscal rules, they pretty much have to resort to raising tax revenues somehow.
“I’m sure there will be initiatives to boost growth in the Budget, but I think it’s pretty unlikely that they will have a big enough effect over this Parliament to obviate the need for some tax increases. And I agree that the easiest – and probably least distortive – way to raise that revenue would be to increase the basic rate of income tax.”
Julian Jessop, an independent economist, added: “If the Chancellor does have to raise ten of billions more in tax – still a big if, in my view – then some combination of increases in income tax and in VAT would be the simplest and cleanest way to do it.
“This would be almost impossible to square with the manifesto commitment. Nonetheless, Rachel Reeves could argue that this pledge has to be broken because the Office for Budget Responsibility has only now scored the full extent of the productivity slowdown left by the previous government. In other words, ‘the legacy of 14 years of Tory rule was even worse than we thought.’”
The basic rate of tax has not been increased since Labour upped it back in 1975. Then, it was increased from 33 per cent to 35 per cent.
But calls for an increase to income tax have now been growing.
Just this week, the Institute of Directors (IoD) said that Labour must increase income tax to fix the public finances.
Edward Jones, a professor of economics at Bangor University, said: “If we strip out the politics and focus on the economics, then raising the basic rate of income tax is arguably the cleanest and least economically damaging way for Reeves to restore her fiscal headroom.
Read Next
square HUGO GYEReeves has to take a political hit on tax to save Labour
Read More“The UK Government leans heavily on a small set of taxes (income tax being one) and tinkering with other smaller taxes would only raise a fraction of what’s required to shift the fiscal dial.”
Earlier this week, the Resolution Foundation think-tank said Reeves should consider a cut to national insurance at the Autumn Budget and to then offset this with a rise in income tax.
National insurance is paid by most employed workers, but some groups – such as pensioners aged above 65 and landlords – avoid paying it.
If a government does not show a commitment to getting finances on a strong footing, then the cost of servicing debt – bond yields – can rise.
Jones said: “Bond markets would likely react positively to an increase in income tax.
“The bond market would react positively if they believed that Reeves approach was achievable. I doubt they would care about the breaking of manifesto commitments. They only care that the policies can be implemented and sustained.”
The Treasury was contacted for comment.
Hence then, the article about ditch manifesto pledge and raise income tax at budget top economists tell reeves was published today ( ) and is available on inews ( Middle East ) The editorial team at PressBee has edited and verified it, and it may have been modified, fully republished, or quoted. You can read and follow the updates of this news or article from its original source.
Read More Details
Finally We wish PressBee provided you with enough information of ( Ditch manifesto pledge and raise income tax at Budget, top economists tell Reeves )
Also on site :
- Pardoned Jan 6 rioter chased from pro-ICE rally in Minneapolis after blasting ‘Ice, Ice Baby’ and threats to burn Quran
- Russia-Ukraine war: List of key events, day 1,424
- Today’s NYT ‘Strands’ Hints, Spangram and Answers for Sunday, January 18, 2026