Labour’s Chancellor, Rachel Reeves, has dropped her clearest hints yet that the party may abandon some of its flagship manifesto pledges on taxes.
Speaking on BBC Radio 5 Live, she suggested that sticking to promises not to raise income tax, National Insurance, or VAT could only be achieved by cutting investment—a move she has ruled out.
The Budget Crunch
Reeves said the government’s finances are “significantly worse” than anticipated when Labour’s manifesto was drawn up.
While she stopped short of confirming an income tax rise, she stressed that final decisions on tax and spending haven’t been made.
However, her remarks pointed strongly toward tough choices in the upcoming Budget.
The Chancellor also indicated that the two-child benefit cap is likely to be scrapped, insisting families shouldn’t be penalised for having more children.
If implemented, this would be the first increase in the benefit rate since 1975.
The Treasury faces a financial gap estimated between £20 billion and £40 billion, forcing Reeves to weigh tough options.
Backlash from Labour MPs
Inside Westminster, Labour MPs are increasingly uneasy about the signals coming from the Treasury.
Former minister Cat West warned the party that breaking manifesto promises could be politically disastrous, likening it to the Liberal Democrats’ tuition fee backtrack in 2015.
Cabinet ministers have reportedly voiced private concerns, while deputy leader Lucy Powell urged sticking to Labour’s pledges.
Meanwhile, left-wing MPs are pressuring Reeves to raise taxes on the wealthy, though officials worry this could slow efforts to boost economic growth.
Blaming External Factors
Reeves did not shy away from attributing some of the fiscal difficulties to external events.
She cited ongoing economic disruptions, including Brexit, the Ukraine war, tariffs from President Trump, and a slowdown in productivity as key reasons for the tighter-than-expected budget.
“We have to live within our means,” she said, stressing that the government will need contributions from everyone to stabilise finances.
Rumours of Tax Hikes
Speculation has been rife about potential revenue-raising measures, from taxing mansions to pensions and savings.
In a rare pre-Budget address, Reeves insisted that “we will all have to contribute,” underlining that hard decisions are looming.
Political Consequences
Any move to break Labour’s tax promises risks triggering severe backlash from voters and Tory attacks calling for Reeves to be sacked.
Left-wingers continue to demand that measures protect the working class, while the Chancellor remains firm that difficult decisions cannot be avoided.
What Comes Next
The Office for Budget Responsibility is due to provide first costings of draft policies, which will shape the forthcoming Budget.
Reeves has pledged to make decisions she believes are in the national interest, even if they are unpopular, promising a focus on long-term economic stability rather than short-term political expediency.