Chancellor Rachel Reeves is no longer planning to raise income tax rates in the 26 November Budget after officials received improved projections from the Office for Budget Responsibility. The shift, first reported by the Financial Times and corroborated by Reuters, follows a revised package lodged with the OBR last week rather than in response to political turbulence at No 10, according to live reports based on PA briefings.
Earlier this month the Treasury asked the OBR to cost a 2p increase in the main income tax rates paired with a 2p cut to employee National Insurance. The FT reported the option was designed to protect employees’ take‑home pay while bringing non‑NI taxpayers, including many pensioners and landlords, into scope-though it would have breached Labour’s election wording. The Resolution Foundation set out the mechanics of such a switch.
Subsequent OBR assessments are understood to have strengthened the outlook for wages and receipts, trimming the projected gap by several billions and bringing it closer to £20bn from earlier estimates near £30bn. The Independent’s live coverage attributed this to stronger pay and a smaller‑than‑feared productivity hit; the BBC had previously flagged productivity as a key risk to the fiscal position.
Decisions remain anchored to the fiscal rules. HM Treasury’s mandate requires the current budget to be in surplus by 2029–30 and public sector net financial liabilities to be falling; in the OBR’s October 2024 forecast, headroom against the current‑budget target in the final year was £9.9bn. Ministers have indicated they want to rebuild that margin.
The political calculus is tight. At Prime Minister’s Questions this week, Keir Starmer declined to restate the manifesto pledge when challenged by Conservative leader Kemi Badenoch. Labour’s new deputy leader Lucy Powell has argued the party must keep its promises, while Health Secretary Wes Streeting said it is sensible to stop speculating and wait for the Budget.
Attention now turns to thresholds, allowances and fiscal drag. Freezing or lowering thresholds raises revenue as nominal pay growth pulls more people into tax and into higher bands. The Institute for Fiscal Studies estimates that extending all income tax and NICs threshold freezes by two years to April 2030 would raise £8.3bn a year by 2029–30, with a minimum‑wage worker liable for income tax after roughly 18 hours a week.
Such a move would contrast with Reeves’s position at the October 2024 Budget, when she told MPs she would not extend the threshold freeze beyond 2028–29 and would resume inflation uprating thereafter. Revisiting the policy would not change headline rates but would lift effective tax bills for many earners, as the IFS analysis shows.
Other revenue options under discussion include motoring and gambling. Media reports point to an electric‑vehicle road‑use charge being examined, and further tax measures on the gambling sector; the government has already legislated for a statutory levy on operators from April 2025. Industry responses include concern about EV uptake and warnings from betting chains about shop viability.
Markets reacted to the overnight change in stance with higher gilt yields and a softer pound before stabilising as the rationale emerged. Agency and live reporting noted that stronger‑than‑expected receipts from wage growth and a less severe productivity downgrade were central to the OBR’s revised outlook.
For finance leads and payroll teams, the practical tasks are clear: re‑forecast PAYE under threshold‑freeze scenarios to April 2030; review salary‑sacrifice arrangements given possible policy tightening flagged in briefings; and plan on the basis that thresholds uprate from April 2028 unless stated otherwise. The OBR’s certification on 26 November will set the new headroom path; No 10 says the aim remains resilient public finances with sufficient buffer against shocks.