As Chancellor Rachel Reeves prepares for her first budget, Labour officials insist that extending the income tax freeze won’t violate their manifesto promise to avoid tax increases for working people

In a move that could reshape the landscape of UK taxation, Labour sources have assured that a proposed extension of the income tax threshold freeze beyond 2028 does not violate the party’s election promises. This assurance comes as the new Chancellor, Rachel Reeves, gears up to unveil a budget on 30 October that aims to plug a significant £40 billion gap in public finances.

The announcement follows a turbulent period for Labour, which has been grappling with its fiscal responsibilities. In the lead-up to June’s general election, both party leader Sir Keir Starmer and Reeves committed to not raising taxes on working individuals. However, the planned freeze on tax thresholds, a remnant of policies established under the previous Conservative government, could facilitate an influx of approximately £7 billion into the treasury by bringing more taxpayers into the fold.

Under the current proposal, around 400,000 additional people could find themselves liable for income tax at the basic rate, as their wages climb above static thresholds. This situation is often referred to as “fiscal drag,” a phenomenon where inflation and wage growth result in higher taxes without any actual rate increase. Such a strategy could provide a temporary financial balm for the government but raises questions about its long-term implications.

The previous Conservative government initiated the freeze in 2022, which was expected to be lifted in 2028. However, with the new chancellor contemplating an extension of this freeze for the remainder of the parliamentary term, critics argue that this could lead to a stealth tax burden on working families. Government insiders have countered that the specific wording of Labour’s manifesto—promising not to raise the “rates” of income tax—provides sufficient grounds for their actions, suggesting that while thresholds may remain unchanged, the actual tax rates of 20p, 40p, and 45p will not see an increase.

However, as wages rise, individuals will inevitably find themselves contributing more. This nuanced interpretation of Labour’s pledge has sparked a debate about the integrity of the party’s commitments to the electorate. Historically, the Conservatives faced similar criticism in 2019 when they also vowed not to raise tax rates, only to freeze tax thresholds, a move Labour lambasted at the time as a “stealth tax.”

The forthcoming budget promises to be a pivotal moment for Reeves, who faces mounting pressure to solidify her fiscal strategy within the next 11 days. The urgency of her task is underscored by a projected £22 billion “black hole” in public finances—a gap attributed to stringent borrowing rules the government has adhered to over the next five years. Filling this void would merely suffice to maintain the status quo for public services, a notion that has raised alarm bells among those advocating for more robust investment in essential services.

As the date approaches, the Chancellor is expected to navigate a fine line between fulfilling her party’s promises and addressing the pressing financial realities faced by the nation. The Labour leadership’s commitment to avoiding tax hikes for working people remains a cornerstone of their strategy, but the practicality of this pledge is being scrutinised as economic pressures mount.

While some Labour insiders remain optimistic about the party’s position, the opposition is likely to seize upon any perceived contradiction. Critics will argue that extending the freeze could undermine Labour’s broader commitment to economic fairness.

Reeves’ budget will serve as a crucial test of the party’s resolve, offering insights into how Labour plans to balance fiscal responsibility with its pledges to the electorate. As the Chancellor prepares to unveil her strategy, the nation waits with bated breath, eager to understand how these financial decisions will impact ordinary working people in the coming years.