Rachel Reeves, who is grappling with a multi-million pound black hole, said last year she would end the income tax threshold freeze by 2028. But there is speculation it could be extended
Keir Starmer has refused to rule out extending the freeze on income thresholds at next week’s Budget.
Chancellor Rachel Reeves, who is grappling with a multi-million pound black hole in the public finances, said last year she would end the freeze by 2028. Introduced under the Tories, it is often branded a stealth tax as more and more people are dragged into paying a higher rate of tax as their incomes rise.
Ms Reeves had argued extending the freeze would “hurt working people” and “take more money out of their payslips” as she delivered her maiden Budget in October 2024. But there has been speculation Ms Reeves is now looking at extending the freeze for another two years.
Speaking at PMQs, the Tory leader Kemi Badenoch asked: “Can he confirm today that he won’t break another promise by freezing income tax thresholds?”
Mr Starmer replied: “The Budget is one week today and we will lay out our plans. I’ve said what we will do in terms of protecting the NHS and public services. What we won’t do is inflict austerity on the country as they did. What we won’t do is inflict a borrowing spree like Liz Truss did.”
The Tory leader went on to say: “It is quite clear that they are going to freeze thresholds. We didn’t get a clear answer from them but this is really important, because in her budget speech last year, the Chancellor said, and I quote: ‘I am keeping every single promise on tax that I made in our manifesto.’
“So, there will be no extension of the freeze in income tax and national insurance thresholds. Why was freezing thresholds a breach of the manifesto last year, but it isn’t this year?”
Mr Starmer replied: “Every week she comes along and speculates and distorts They opposed NHS investment and what did we get? Five million extra appointments in the first year of a Labour Government. They tried growing the economy with millions on NHS waiting lists, with our schools crumbling and holes in our roof. It didn’t work. What do they want to do now? Go back to the same failed experiment.”
It comes after Ms Reeves last week abandoned plans for a hike to the headline rate of income tax in the Budget. Labour’s manifesto promised to protect working people from increases to VAT, National Insurance and income tax.
But Treasury insiders said last week better than expected economic forecasts had reduced the size of the black hole in the public finances, allowing the Chancellor to ditch the move. The Office for Budget Responsibility told the Treasury that the hole in the public finances is closer to £20billion – lower than the £30billion-£40billion previously feared.
Meanwhile a group of 30 Labour MPs urged Ms Reeves to introduce wealth taxes on the super-rich next week. They are calling for a 2% annual tax on assets over £10million in order to raise billions.
The motion signed by the MPs states “such a measure would represent a fairer alternative to cuts and could provide urgently needed resources to tackle the poverty and inequality that blights our society”.