Sir Keir Starmer has refused to block the income tax threshold in next week’s budget as Labor tries to plug a multi-billion pound hole in the country’s finances.
As the government struggles to find money from other sources, the prime minister did not rule out forcing many to pay more by fixing a higher rate starting point – a so-called fiscal stretch.
Leading economists warned that the move, which could lead to the government being accused of breaking manifesto promises, risked creating more problems as it “may not calm markets”.
The refusal to overturn the freeze comes after Chancellor Rachel Reeves last week reversed plans for a wider income tax hike, which spooked markets.
Ms. Reeves has been warned that a combination of higher borrowing, slow economic growth and job turnover means she will have to raise taxes or tear up her key borrowing rules in the budget.
Sir Keir was quizzed on the tax thresholds at Prime Minister’s Questions by Tory leader Kimmy Budnoch, who said continuing to freeze them would be a breach of Labour’s manifesto.
He asked her: “This is the first Budget to be known before it’s even delivered. I’m afraid the Chancellor’s ignorance is now hurting the economy. The Prime Minister needs to put an end to this sabotage. So, can she confirm today that she’s not breaking another promise by freezing the income tax thresholds?”
Sir Kiir replied: “Today’s Budget is a week away and we will present our plans then.”
The Tory leader slammed the government for budget chaos, which he said was “causing real concern. People aren’t buying homes, businesses aren’t hiring, and they’re canceling investment decisions.”
Afterwards, a Tory spokesman said: “The Prime Minister did not repeat the repeated promise made by the Chancellor in her Budget last year to end the freeze on the income tax threshold.
Rachel Reeves said any suspension would be on the verge of breaching the Labor Manifesto and would hurt workers. If he doesn’t end the budget freeze next week, it will be another broken promise from a government that has lost the trust of the British public.
said Stephen Millard, deputy director of macroeconomics at the National Institute for Economic and Social Research Independent Among the positives of such a measure is that it “raises revenues, though later in Parliament, not now, and broadens the tax base, negating to some extent the need to raise the base rate.”
However, he said any suspension could break the party’s manifesto commitment and hit middle-income households, who are likely to have to pay higher rates of tax in the future.
“And it may not calm the markets, given the promise of future taxes, which can always be rolled back, not today’s tax hikes,” he warned.
