Sunday, November 16, 2025
Has Rachel Reeves budget turned into an omnishambles?
The Independent reports that Downing Street has been blamed for forcing Rachel Reeves to reverse Budget plans to raise income tax in what was described as “a panic move” to save Sir Keir Starmer’s premiership.
The paper says that Labour MPs, ministers and the markets were left stunned by a Financial Times report that the chancellor has now abandoned the measure despite two weeks of clear hints in public speeches that she was poised to break the party’s manifesto pledge:
Downing Street was blamed on Friday for forcing Rachel Reeves to reverse Budget plans to raise income tax in what was described as “a panic move” to save Sir Keir Starmer’s premiership.
Labour MPs, ministers and the markets were left stunned by a Financial Times report that the chancellor has now abandoned the measure despite two weeks of clear hints in public speeches that she was poised to break the party’s manifesto pledge.
With markets spooked by the sudden U-turn, the cost of borrowing for the government spiked, with 10-year gilts up 12 basis points at 4.56 per cent.
Treasury sources insisted the decision had been taken because of better-than-expected economic data, but others blamed interference from Downing Street in a bid to protect the prime minister from a potential leadership challenge.
One minister told The Independent that No 10 is “gripped by a state of panic”.
The drama unfolded after the chancellor laid the groundwork for tax hikes, including several hints that she would need to break Labour’s election pledge not to raise income taxes.
But the reversal came after the prime minister was under siege following a briefing to journalists – reportedly by Downing Street officials – that health secretary Wes Streeting was planning a leadership bid.
The chancellor is now expected to increase a handful of smaller taxes in an attempt to balance the books, despite warnings from economists that such a move could make the system “more complicated and inefficient”.
Possible measures include a gambling tax, a bank levy tax, various wealth taxes, or a mansion tax on properties valued at £2m and over.
Jim O’Neill, the former Treasury minister and Goldman Sachs boss who was brought in by the chancellor to be her economic adviser in opposition, described the developments as “bothersome”.
He said: “I’m surprised. If it means their defaulting to accumulated fringe, possibly growth-damaging taxes again, it will be bothersome.”
Stephen Millard, deputy director of the National Institute of Economic and Social Research (NIESR), warned: “There are two dangers here. First, by resorting to smaller changes to lots of marginal taxes, the chancellor risks making the overall tax system ever more complicated and inefficient (in the sense of creating more distortions in the economy).
“Second, this would make it harder for the chancellor to build a large buffer against her fiscal rules. As we’ve seen over the past year, having a small buffer creates uncertainty and endless speculation about further tax rises, given it would only take a small downgrade in the UK’s growth prospects to wipe the buffer out.”
Tax expert Dan Neidle told The Independent that seeking to raise money from a “grab bag” of lots of different tax measures instead would be “very damaging”.
Isaac Delestre, senior tax analyst at the Institute for Fiscal Studies (IFS), said: “We obviously don’t know how much she’s looking to raise, but the risks of doing something unnecessarily economically damaging increase if she is going to look to raise large amounts from smaller taxes.”
He suggested: “One other obvious option that could raise a lot of money is looking at income tax thresholds (the Labour manifesto pledge on IT, NICs and VAT only talks about rates of income tax). Although worth noting that in real terms, thresholds have already come down a lot since 2021 because they’ve been frozen in real terms.”
In normal times a chancellor ruling out income tax rise would receive acclamation, but the way tax increases have been floated and then pulled back just appears shambolic. Furthermore, the prospect of income tax thresholds being frozen until 2030 means that we will all be paying more tax anyway.
This Labour government is giving the impression of being made up of headless chickens. They have no direction and no leadership. Can Rachel Reeves rescue them on budget day? It is looking increasingly unlikely.
The paper says that Labour MPs, ministers and the markets were left stunned by a Financial Times report that the chancellor has now abandoned the measure despite two weeks of clear hints in public speeches that she was poised to break the party’s manifesto pledge:
Downing Street was blamed on Friday for forcing Rachel Reeves to reverse Budget plans to raise income tax in what was described as “a panic move” to save Sir Keir Starmer’s premiership.
Labour MPs, ministers and the markets were left stunned by a Financial Times report that the chancellor has now abandoned the measure despite two weeks of clear hints in public speeches that she was poised to break the party’s manifesto pledge.
With markets spooked by the sudden U-turn, the cost of borrowing for the government spiked, with 10-year gilts up 12 basis points at 4.56 per cent.
Treasury sources insisted the decision had been taken because of better-than-expected economic data, but others blamed interference from Downing Street in a bid to protect the prime minister from a potential leadership challenge.
One minister told The Independent that No 10 is “gripped by a state of panic”.
The drama unfolded after the chancellor laid the groundwork for tax hikes, including several hints that she would need to break Labour’s election pledge not to raise income taxes.
But the reversal came after the prime minister was under siege following a briefing to journalists – reportedly by Downing Street officials – that health secretary Wes Streeting was planning a leadership bid.
The chancellor is now expected to increase a handful of smaller taxes in an attempt to balance the books, despite warnings from economists that such a move could make the system “more complicated and inefficient”.
Possible measures include a gambling tax, a bank levy tax, various wealth taxes, or a mansion tax on properties valued at £2m and over.
Jim O’Neill, the former Treasury minister and Goldman Sachs boss who was brought in by the chancellor to be her economic adviser in opposition, described the developments as “bothersome”.
He said: “I’m surprised. If it means their defaulting to accumulated fringe, possibly growth-damaging taxes again, it will be bothersome.”
Stephen Millard, deputy director of the National Institute of Economic and Social Research (NIESR), warned: “There are two dangers here. First, by resorting to smaller changes to lots of marginal taxes, the chancellor risks making the overall tax system ever more complicated and inefficient (in the sense of creating more distortions in the economy).
“Second, this would make it harder for the chancellor to build a large buffer against her fiscal rules. As we’ve seen over the past year, having a small buffer creates uncertainty and endless speculation about further tax rises, given it would only take a small downgrade in the UK’s growth prospects to wipe the buffer out.”
Tax expert Dan Neidle told The Independent that seeking to raise money from a “grab bag” of lots of different tax measures instead would be “very damaging”.
Isaac Delestre, senior tax analyst at the Institute for Fiscal Studies (IFS), said: “We obviously don’t know how much she’s looking to raise, but the risks of doing something unnecessarily economically damaging increase if she is going to look to raise large amounts from smaller taxes.”
He suggested: “One other obvious option that could raise a lot of money is looking at income tax thresholds (the Labour manifesto pledge on IT, NICs and VAT only talks about rates of income tax). Although worth noting that in real terms, thresholds have already come down a lot since 2021 because they’ve been frozen in real terms.”
In normal times a chancellor ruling out income tax rise would receive acclamation, but the way tax increases have been floated and then pulled back just appears shambolic. Furthermore, the prospect of income tax thresholds being frozen until 2030 means that we will all be paying more tax anyway.
This Labour government is giving the impression of being made up of headless chickens. They have no direction and no leadership. Can Rachel Reeves rescue them on budget day? It is looking increasingly unlikely.
