Britain’s Chancellor of the Exchequer, Rachel Reeves, has set the stage for a dramatic shift in the nation’s tax policy, informing the Office for Budget Responsibility (OBR) that her November 26, 2025 budget will likely include a rise in income tax—a move that, if implemented, would mark the first increase to the basic rate in half a century. The plans, confirmed by multiple news outlets including The Times, Reuters, and GB News, signal a break from Labour’s election pledges and have already sent ripples through the country’s political and economic landscape.
According to The Times, Reeves’ official submission to the OBR outlines not only a 2p increase in income tax but also a 2p cut in National Insurance contributions. This twin-track approach is designed to shift the tax burden away from workers and toward groups such as pensioners and landlords. The national insurance cut, however, is likely to be capped at earnings below £50,270, with the rate for those earners dropping from 8% to 6%. Earnings above that threshold would remain taxed at 2%. Economists estimate this set of changes could generate more than £6 billion annually for the Treasury.
While these proposals are still under consideration and could be reversed, their inclusion in the government’s official communication to the OBR makes them the most concrete signal yet that Reeves is prepared to break Labour’s manifesto promise not to raise income tax, national insurance, or VAT. As Reuters reported, Reeves is under pressure to raise tens of billions of pounds through taxation in order to meet strict fiscal targets—a key concern for bond investors watching Britain’s economic stability.
In a letter to the OBR, Reeves confirmed that “levying ‘working people’ will be among [her] major measures” to be announced on November 26. She has repeatedly emphasized the need for a collective effort to repair public finances, stating in a speech on November 4, 2025, “each of us must do our bit.” This rhetoric marks a clear departure from Labour’s previous stance, as she now signals a willingness to pursue broad tax rises to avoid a return to austerity and to sustain public spending amid high debt, weak productivity, and persistent inflation.
Reeves’ office underscored the scale of the challenge, telling Reuters that the budget will “continue to build the strong foundations to secure Britain’s future and on the priorities of the British people—cutting waiting lists, cutting national debt and cutting the cost of living.” The Chancellor is also expected to extend the freeze on income tax thresholds for another year, pushing the freeze out to the 2029-30 tax year. This so-called “stealth tax” tactic drags more people into higher tax brackets as wages rise, even if the thresholds themselves remain unchanged.
Despite the Chancellor’s insistence on acting in the national interest, her plans have not gone unchallenged within her own party. Labour’s deputy leader, Lucy Powell, voiced concerns on BBC Radio 5 Live, stressing, “Trust in politics is a key part of that because if we’re to take the country with us then they’ve got to trust us and that’s really important too. We should be following through on our manifesto, of course. There’s no question about that.” Powell’s comments highlight the tension between fiscal necessity and political credibility—a balancing act that Reeves must now navigate under intense public scrutiny.
The economic backdrop to these proposed measures is far from rosy. The OBR recently downgraded its productivity forecasts, leaving a hole of up to £30 billion in the public finances. To fill this gap, Reeves is determined that “the wealthiest should face the biggest tax rises,” according to The Times. Limiting the national insurance cut to lower earners and keeping higher rates for those with the “broadest shoulders” is intended to ensure that the burden falls most heavily on those best able to bear it.
However, the mere prospect of tax hikes has already had a chilling effect on the economy. The Bank of England warned this week that speculation over Reeves’ tax plans is harming growth, with both consumer spending and business investment falling in recent weeks. The Monetary Policy Committee (MPC) noted that businesses are experiencing “very high” levels of uncertainty—greater than at any time since the aftermath of Liz Truss’s ill-fated mini-budget. “Contacts report that weak demand and elevated uncertainty ahead of the autumn budget may be causing firms to delay investment,” the Bank said. Consumer confidence has sagged, the housing market has stalled, and ITV, one of the country’s major broadcasters, warned of a sharp drop in advertising revenues as companies tighten their belts in anticipation of the budget.
The Bank also expects unemployment to rise to a ten-year high of over 5% in 2026, in part due to higher employment costs stemming from Reeves’s previous budget, which included a £25 billion payroll tax raid and a 6.7% rise in the minimum wage. These increases have contributed to food inflation as supermarkets pass on the costs of higher employer national insurance contributions to consumers. The Bank’s governor, Andrew Bailey, announced that interest rates would remain unchanged at 4% for now, but noted that it was “too early to say” that inflation was under control. Nevertheless, Martin Beck, chief economist at WPI Strategy, suggested that a rate cut at the MPC’s next meeting on December 18 is now “odds on”—a move that could offer some relief to households and businesses facing a heavier tax burden.
While the Chancellor’s plans are still subject to revision—indeed, The Times notes that Reeves could yet change course—their formal presentation to the OBR signals a high degree of seriousness. The National Institute of Economic and Social Research has urged Reeves to find £50 billion worth of measures, underscoring the scale of the fiscal challenge ahead. With the budget just weeks away, the country is bracing for what could be the most significant tax policy shift in decades, with repercussions not only for workers, pensioners, and landlords, but for the political fortunes of the Labour government itself.
As Britain awaits the November 26 budget, the coming weeks promise to be a test of both economic strategy and political resolve, with households, businesses, and politicians all watching closely to see just how far the Chancellor is willing to go in pursuit of fiscal stability.
