Rachel Reeves is considering raising income tax at next month’s budget to help reduce a multibillion pound shortfall, it has been claimed.
The Chancellor is eyeing up a series of tax raids as she seeks to fill an estimated £30bn black hole in the public finances, according to reports.
Among the options she is looking at would involve raising income tax by adding 1p to basic rate, the Guardian reported.
Some Treasury and No10 advisers believe that raising the tax may be the only way to raise enough money never to have to come back for tax rises again in this parliament, it said.
But if Ms Reeves does so in a move it is estimated would bring in £8bn to the treasury then it would break one of Labour's key manifesto pledges and risk a major political and voter backlash.
With the chancellor having promised to make sure those with the “broadest shoulders” face the highest burden, others believe she is more likely to raise the higher or additional rates.
Those rates, which kick in at roughly £50,000 and £125,000 a year, bring in the much smaller sums of about £2bn and £230m, respectively.
It was reported this week the chancellor is considering a new £2bn tax hit on more than 190,000 people who use limited liability partnerships.
The chancellor has said she wants to have more than the £10bn fiscal headroom she accounted for at the spring statement, which has since been eroded by changing economic forecasts and higher borrowing costs, but she has not yet decided how much, the Guardian reported.
“There is a very live debate going on right now among those planning the budget about how bold we want to be on the headroom,” an insider told the Guardian.
“No one wants it to be £10bn again but there is an argument we go much higher, which will mean we don’t have to come back and do this again and might have space to cut taxes before the budget.
“If we go down that route however, it makes it more likely that we have to raise income tax – that is the discussion that is going on at the moment.”
Another source said: “Rachel is understandably nervous but there is a big desire for additional headroom. But we need a stronger argument about our purpose if we are going to make the case.”
A third source said: “The politics is bad either way. What matters, I think, is doing the right thing.”
A Treasury spokesperson declined to comment to the Guardian and did not immediately respond to a request for comment from Reuters.
The Chancellor wants to balance day-to-day spending with tax revenues by the end of the decade. The current budget deficit stood at £71.8 billion pounds in the April to September period, up 17% year-on-year.
Earlier this month, Ms Reeves said she was looking at tax and spending measures for next month's budget on November 26.
