Labour Government Under Fire Over Income Tax Threshold Freezing Plans. As the shadow budget looms in on October 30, the government has claimed that a plan to extend the freezing of income tax thresholds beyond 2028 would not be a breach of the Labor election manifesto on which party leader Sir Keir Starmer and new chancellor Rachel Reeves campaigned — to “not raise taxes on working people”.
Although the manifesto explicitly says that the “rates” of income tax are to stay the same, so 20p, 40p, and 45p in England, Wales, and Northern Ireland, freezing thresholds could raise some £7 billion, from fiscal drag as more people are brought into tax.
Tax thresholds are fixed to remain the same for the next two years under the previous Conservative government. They will increase annually from 2028, but Chancellor Reeves is said to be considering extending this freeze into the rest of the parliamentary term. That would add 400,000 more people to the list of people who pay income tax at the basic rate in total.
The government says this policy does not break Labour’s promise to not increase taxes on working people. Critics say that would undermine the party’s wider promise. One need just recall that the Conservatives promised not to raise taxes in 2019, a promise they evaded by freezing tax thresholds — a decision Labour indignantly described as a “stealth tax”.
She has to cover a projected £22 billion “black hole” in public finances, the deficit shaped by the government’s borrowing rules over the next five years. To stabilize public services without real-term cuts to government departments, Reeves has to find £40 billion in savings, and possibly tax adjustments.
The Chancellor has said that “tough decisions” would be needed to resolve such financial constraints even with just 11 days left to the budget.
