The possible move drew immediate criticism from the Conservatives who said it could be seen as a breach of Labour’s manifesto pledge not to raise taxes on “working people” by increasing income tax, national insurance or VAT.
Freezing income tax thresholds could bring in as much as £7bn a year after 2028, in the continuation of a policy first launched by Rishi Sunak during his time as chancellor, which was also extended by his successor, Jeremy Hunt. Reeves is also believed to be looking at raising inheritance tax, as well as considering a rise to capital gains tax on shares, but not on the sale of second homes.
Asked about both income tax thresholds and inheritance tax on Friday in Germany, Keir Starmer declined to comment ahead of the budget, which will be unveiled on 30 October.
Pressed on whether prolonging the freeze on income tax thresholds would be a breach of the manifesto, Starmer said: “We are going to keep our manifesto pledges. I’ve made that very clear.
“I’m not going to pre-empt the individual measures that will be outlined by the chancellor in due course, but I’m equally clear – this is going to be a budget that will fix the foundations and rebuild our country.”
With billions to raise to fund the government’s plans, Reeves is examining changes to her fiscal rules that would redefine how debt is measured.
The Guardian understands she is also closing in on changes to the Treasury’s fiscal rules to unlock billions of pounds in additional borrowing headroom for investment in long-term infrastructure projects.
Whitehall sources said all options were “still in play” but that Reeves was prepared to make changes to the rules.