Keir Starmer and Rachel Reeves have decided against raising income tax in the upcoming Autumn Budget, The Financial Times reports.
It’s likely the pair fear the effects of breaking a manifesto pledge to not touch the tax.
Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “The government has apparently U-turned on its income tax U-turn – effectively coming full circle. Plans to drop the manifesto promise not to raise income tax have reportedly been shelved.
“It means the government can avoid the associated drama of going against a manifesto promise, but it will need other options to close the gap in its finances.”
It’s more likely that income tax thresholds could be frozen for longer, which effectively means taxes will be increased by stealth, as inflation causes incomes to rise.
As it stands income tax thresholds will remain until April 2028.
Coles added: “Fiscal drag has hauled over 6 million more people into paying income tax, and 3.36 million more into paying higher or additional rate tax.
“We’ve had to hand over an extra £89 billion in income tax this year – compared to 2021/22 – as a result.
“The Institute for Fiscal Studies says a freeze for another two years would mean that by 2030, one in four people will pay higher rate tax [with annual income above £50,271].”
The government is looking to fill a fiscal hole amounting to an estimated £30 billion.
It’s thought a mansion tax is still being considered, which according to reports would implement a 1% annual levy on properties worth over £2 million.