Rachel Reeves is reportedly considering raising income tax in her Budget next month in what would be a major break of one of Labour’s main manifesto pledges.
Sources have told The Guardian that she may raise income tax to fill a hole in the public finances estimated at between £30bn and £50bn.
The paper reported the Chancellor is “nervous” about breaking such a major pledge, but some advisers in the Treasury and No 10 believe it may be the only way to raise enough money to make sure she does not have to raise taxes again this parliament.
Before the election, Labour’s pledged no tax rises on working people.
But one source said the Treasury is considering adding 1p to the basic rate, which would raise more than £8 billion. Another believes she will likely raise higher or additional rates, which would bring smaller sums of £2bn and £230m at rates beginning at roughly £50,000 and £125,000 a year.
A senior official said there have been discussions about how much headroom Ms Reeves wanted to give herself, with some saying she wants more than the £10bn she accounted for at the spring statement.
“There is a very live debate going on right now among those planning the budget about how bold we want to be on the headroom,” the source told The Guardian.
“No one wants it to be £10bn again but there is an argument we go much higher, which will mean we don’t have to come back and do this again and might have space to cut taxes before the budget.
“If we go down that route however, it makes it more likely that we have to raise income tax – that is the discussion that is going on at the moment.”
A Treasury spokesperson told The Independent: “We do not comment on speculation around changes to tax.”
When asked over the possibility of raising income tax earlier this month, Ms Reeves said she stood by the “commitments that we made in the manifesto and for a reason”.
“Because working people experienced in the last Parliament the worst-ever living standards in any Parliament. But worse than that, living standards were actually lower at the end of the last Parliament than they were at the beginning,” she said.
On Wednesday, it was reported that lawyers, GPs and accountants will face higher taxes, with a charge on workers who use limited liability partnerships (LLP) to raise £2bn.
The UK has 355,760 partnerships, with 86,030 of them having employees, according to money.co.uk. Partnerships do not pay employer’s national insurance of 15 per cent because partners are treated as self-employed. Partners also pay a lower rate of employee national insurance.
Ms Reeves is also expected to announce a “mansion tax”, imposing capital gains tax on the sale of the most expensive homes.
On Tuesday, as she appeared to pave the way for tax rises, Ms Reeves said that Brexit and austerity had had a bigger effect on the public finances than expected.
