Labour sources are asserting confidently, as the government prepares for its budget announcement, which could see income tax thresholds frozen beyond 2028, it wouldn’t breach their election manifesto commitment. Key party figures, including leader Sir Keir Starmer and soon-to-be Chancellor Rachel Reeves, made it clear leading up to the general election they wouldn’t impose tax increases on workers.
This proposed threshold freeze has the potential to generate around £7 billion by bringing more people under the tax umbrella. Reeves is hard at work seeking ways to fill what amounts to £40 billion through some taxation changes and savings, which she’s expected to outline very shortly.
The plan follows the last Conservative government’s tax threshold freeze from 2022. Initially, these thresholds were set to rise again starting 2028; yet now, whispers suggest they might remain unchanged for the entire parliamentary term. Freezing tax thresholds leads to what’s known as "fiscal drag," effectively pulling more workers—roughly 400,000—into paying income tax at the basic rate as their earnings progress.
Labour insiders are firming up their stance, arguing this move to freeze tax thresholds doesn’t violate the manifesto’s precise wording, which states there will be no increase to the "rates" of income tax. This means the percentages—20p, 40p, and 45p—remain as they are, but the overall tax bill could still swell due to wage increases.
Conservative leaders previously pledged similarly not to raise tax rates but extended tax freezes regardless, which was labeled back then by Labour as stealth taxation. Now, with 11 days before the budget day, Reeves will need everything aligned as critics prepare to challenge her on whether extending the freeze diminishes Labour’s broader promise. Many will question if this is inconsistent with her commitment to not raise costs on the working populace.
Rachel Reeves, poised to become the first female chancellor, emphasized the economic dilemma she faces. The government, operating under specific borrowing regulations, is confronting what she labeled as a staggering £22 billion “black hole” threatening public finances. For her to maintain stability, she stresses the urgency to find the aforementioned £40 billion to prevent real-term cuts across government departments.
“Difficult decisions will have to be made,” Reeves said recently, indicating the gravity of the situation. Her upcoming budget will not only set the administrative tone for Labour’s governing strategy but will also determine how they navigate these economic challenges without sacrificing their core principles.
