Labour could hit the average worker in the pocket to the tune of hundreds of pounds a year if Rachel Reeves goes ahead with a tax raid at the Budget next month.
The Chancellor is said to be considering ripping up the party’s election pledge not to raise income tax paid by millions of Britons as she struggles to get a grip on public spending.
Increasing the basic rate by a penny is said to be the subject of a ‘live debate’ in the Treasury amid fears she cannot bring in enough cash by solely targeting the ‘rich’.
But while it could bring in more than £8billion a year extra it could also take a hammer to Labour’s already wavering support, with workers already fed up at the cost of living. turning to Reform and other parties.
Last week Keir Starmer was humiliated when Labour was beaten into third place in a Welsh Senedd by-election in Caerphilly.
Despite having held power in local and national elections in south Wales for a century the party’s candidate finished miles behind the eventual winner, Plaid Cymru’s Lindsay Whittle, and Reform.
And it may not stop there with the Chancellor also said to be looking at increasing the higher and additional rates of income tax paid by the better off.
Analysis by MailOnline shows that adding a penny to the basic rate of income tax without altering the thresholds would see someone aged 21 or over on the national minimum wage of £23,809 paying an extra £112 a year, based on a 37.5-hour working week.
Someone on a salary of £40,000 would pay out an extra £274.30.
Find out how increasing the various income tax rates by 1p could affect you using our calculator below.
Rachel Reeves, pictured on Wednesday, is said to be in active discussions over breaking Labour’s manifesto by raising income tax in the Budget
Productivity downgrades, the slowing economy and spiking debt interest costs have left Ms Reeves facing bleak choices on November 26.
She has already been testing out a tactic of blaming Brexit as she tries to soften up Brits for more pain.
Analysts believe the gap in the public finances could be as big as £30billion. But some allies are urging Ms Reeves to go even further and give herself ‘headroom’, rather than risk having to come back for yet another tax raid.
The Chancellor already imposed the biggest tax-raising Budget on record last October at £41billion. Anything on that scale next month would mean she has announced more tax rises than Gordon Brown did during a decade in No11.
The Treasury is said to believe that hiking income tax could be the only way to ensure the Chancellor raises enough money to prevent her from returning for more tax grabs for the remainder of this parliament.
But if Ms Reeves does so, as she is reportedly considering, then it would break one of Labour’s key manifesto pledges and risk a major political backlash.
The Chancellor is eyeing up a series of tax raids as she seeks to fill a £30billion black hole in the public finances next month (pictured with Sir Keir Starmer last month)
‘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,’ an insider 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.’
Ms Reeves has already been accused of breaking the manifesto by hiking employers’ national insurance last year, although ministers argued that was not a direct levy on workers.
Her woes have been deepened by the Office for Budget Responsibility (OBR) deciding to downgrade its estimates for Britain’s economic productivity. That is expected to cost the Chancellor around £20billion a year by the end of the forecast horizon.
The reversal of the winter fuel cut, cuts to welfare payments and a likely move to end the two-child benefit cap will also pile further pressure on the Treasury.
Ministers have been using a careful formulation that the manifesto ‘stands’ when asked about the prospect of breaking it.
If she decides to breach the promises, the Chancellor could look to raise the higher or additional tax rates.
Those rates, which begin at around £50,000 and £125,000-a-year, would generate about £2billion and £230million, respectively.
