Chancellor confronts a �30 billion deficit as the Treasury deliberates on how to stabilise Britain's finances

24 October 2025 , 09:30

568     0

Chancellor confronts a �30 billion deficit as the Treasury deliberates on how to stabilise Britain's finances

Rachel Reeves is considering raising income tax in the Budget despite Labour’s manifesto pledge to leave it untouched, reports claim.

The Chancellor is mulling a rise in the tax in order to fill the black hole within Britain’s finances totaling more than £30 billion. 

Three sources close to the Budget process have told the Guardian that Ms Reeves is in "active discussions" to raise the rate.

If she decides to do so, it will mean breaking one of Labour’s key promises from their election-winning manifesto.

During the 2024 General Election campaign, Sir Keir Starmer and Ms Reeves promised not to raise income tax, national insurance (NI), and value-added tax (VAT).

Boris allies set deadline to move against Rishi and install their man in No10

At their first Budget in power, Labour were forced to clarify that the national insurance component of the pledge only referred to employees’ NI contributions - as they raised the employers' contributions rate.

Advisers in the Treasury and Downing Street are reportedly advising that raising income tax may be the only way to raise enough money to rule out further tax rises this Parliament, according to The Guardian.

But officials are also torn over which income tax rates to raise - with Ms Reeves said to be considering adding 1 percent onto the basic rate.

This move would likely spark concerns over the cost of living because it would hit those on lower wages hardest. 

This would be especially controversial after the Chancellor recently promised that those with the “broadest shoulders" would face the highest burden in November’s fiscal event.

But the decision is complicated by the fact that raising the higher and additional rates of tax would only garner the Treasury about £2 billion and £230 million respectively.

A source told the Guardian: “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.

“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.”

James Turner