Rachel Reeves told MPs in the Commons on Wednesday: “I have cut the cost of living – with money off bills and prices frozen – all while keeping every single one of our manifesto commitments.”
The claim was a bold one, given that the chancellor had promised not to raise national insurance, VAT or income tax, and has arguably raised two of them.
Responding to the chancellor’s speech, the Conservative leader, Kemi Badenoch, said: “Because taxing your home, your car, your savings and your pension was not enough, the chancellor has, by her own admission, broken her manifesto promise on income tax.”
So who is right?
What did the manifesto say?
Labour went into the last election with a relatively simple promise on tax, stating: “The Conservatives have raised the tax burden to a 70-year high. We will ensure taxes on working people are kept as low as possible.
“Labour will not increase taxes on working people, which is why we will not increase national insurance, the basic, higher, or additional rates of income tax, or VAT.”
What did Reeves do last year?
Reeves increased public spending significantly at last year’s budget, funded by £40bn worth of tax rises, the biggest of which was a 1.2p rise in the rate of employers’ national insurance contributions.
That move is predicted to raise an additional £25bn a year to the government coffers by 2028-29.
What did she do this year?
The chancellor had been considering raising income tax rates, which would have been a straightforward and undeniable breach of manifesto commitments. She even argued two weeks before the budget: “It would, of course, be possible to stick with the manifesto commitments, but that would require things like deep cuts in capital spending.”
In the end, she junked that plan and chose instead to freeze tax thresholds for three years longer than previously planned. This means that, as wages rise, more people will have to start paying income tax – including some people whose only income is the state pension.
The Office for Budget Responsibility says the move will raise £8bn a year by 2029-30.
What are the arguments that she has broken her manifesto commitments?
The wording of Labour’s manifesto promise was that the party would not “increase national insurance, the basic, higher or additional rates of income tax, or VAT”. Raising employers’ national insurance contributions last year appears a fairly straightforward breach of that promise.
Freezing income tax thresholds would not breach that part of the manifesto. However, given Reeves has previously described exactly such a move as a tax on working people, it arguably breaks the pledge to keep taxes on working people “as low as possible”.
What are the arguments that she has not?
Last year Reeves argued that her original promise did not apply to employers’ national insurance contributions, only to those made by employees. Officials pointed to the words “working people”, saying this showed she did not intend the promise to apply to employer contributions, only employee ones.
This year, her argument is simpler – she promised in the manifesto not to change income tax rates, not thresholds. Although that is complicated slightly by her comments at the last budget that “extending the threshold freeze would hurt working people”.
Although it was not a direct promise, Labour’s manifesto noted that the Conservatives had raised taxes to a 70-year high. The Office for Budget Responsibility said on Wednesday that Reeves’ decisions would push them higher than ever recorded.
