How Rachel Reeves could launch a tax grab on workers
The Chancellor could be about to break Labour's promise not to increase taxes for 'working people'.
Rachel Reeves has repeatedly vowed not to raise key taxes such as income tax, corporation tax or VAT. But she may have to disregard Labour's manifesto pledge if low economic growth forces her to put up taxes in the autumn Budget.
In a worst-case scenario she could become the first Chancellor in 50 years to increase income tax rates, economists have warned.
It comes after Labour policies triggered a fall in capital gains tax receipts and an exodus of the wealthy.
Economic forecasting group, the EY Item Club, has warned the country may require a 'fiscal policy rethink' after it downgraded growth expectations for 2025 and 2026.
US President Donald Trump's tariffs are also expected to damage UK growth by raising prices and reducing export demand.
Tim Stovold, of accountancy firm Moore Kingston Smith, said the manifesto commitment not to increase the rates of income tax, National Insurance (NI) and VAT had 'deprived the Chancellor of the levers that could normally be pulled to collect more tax'.
He said: 'But this commitment was made before the recent fears of a global economic slowdown because of US policies. If there was ever a time to revisit this commitment in the light of today's economic headwinds, it is now.'
Here Telegraph Money outlines the different ways the Chancellor could raise tax on income in this year's Budget.
Extending the freeze on thresholds
Since Rishi Sunak froze income tax thresholds in 2021, government revenue from the levy has soared 36pc to hit £301bn a year.
The latest forecasts suggest eight million workers will be pulled into higher rates of tax by 2028, raising an extra £38bn per year for the Treasury.
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