Keir Starmer and Rachel Reeves have scrapped their highly contentious plans to raise income tax over fears of voter fury – and amid the prospect of a Labour coup.
With just 12 days remaining until Ms Reeves’s “nightmare before Christmas” Budget, officials have told the Financial Times the Downing Street duo have committed to a major U-turn and returned to the confines of Labour’s manifesto.
It is said the pair “ripped up” proposals to raise the basic and higher rates of income tax specifically over fears of angering MPs and the electorate.
Exactly a week ago, the Chancellor wrote to the Office for Budget Responsibility confirming that hiking the levy would be among the “major measures” announced on November 26.
But on Wednesday, she told the OBR the opposite.
One person briefed on the proposals confirmed the original tax plan had been ripped up.
Another confirmed the Budget had been “rewritten” since Ms Reeves’s first letter to the OBR.
The Chancellor now faces a race against time to find a way to fill her estimated £30billion fiscal “black hole”.
Keir Starmer and Rachel Reeves have scrapped their highly contentious plans to raise income tax
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GETTY
One option is said to be the slashing tax thresholds while leaving the headline basic and higher rates of Income tax unchanged.
Ms Reeves had been set to extend a freeze on the thresholds which was introduced by the Conservatives by two years, which could raise as much as £10billion every year.
Cutting the personal tax thresholds, however, would raise billions of pounds more for the Treasury.
Further reports emerged on Thursday night that the Chancellor would axe two more controversial planned raids: An “exit tax” on the wealthy, and a “middle-class tax” on partnership jobs like doctors and accountants.
LABOUR U-TURNS – READ MORE:
Further reports emerged on Thursday night that the Chancellor would axe two more controversial planned raids
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GETTYOn the former, The Telegraph reported that she feared entrepreneurs would flee, moving their money out of the country.
On the latter, The Times reported that Treasury modelling suggested the measures would cost the Exchequer more than they would raise – and because Ms Reeves thought the tax was unfair.
People familiar with the new Budget plans told the FT the Chancellor would instead move to raise a series of more targeted taxes, including on gambling and expensive properties.
After this week’s fierce “briefing war” and challenges to Sir Keir’s leadership, Downing Street officials insisted the tax U-turn had not been made because the PM faced a coup.
Downing Street officials insisted the tax U-turn had not been made because the PM faced a coup
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PA
The original plans, laid out by Labour-linked think tank the Resolution Foundation, would have seen the Chancellor directly break the party’s own manifesto.
Labour’s pre-election pledges had included a promise not to raise taxes on working people.
The income tax scheme would have seen “working people” see no real-terms pay cut – with pensioners and landlords instead forced to pay more National Insurance to account for it.
GB News has approached the Treasury for comment following Thursday night’s revelations.