Rachel Reeves will not “play fast and loose with people’s money”, one of her Cabinet colleagues has said, amid reports the Chancellor has abandoned plans to raise income tax at this month’s Budget.
The Chancellor had been expected to hike income tax in the face of a yawning gap in her spending plans, hinting as recently as Monday that the alternative would be “deep cuts” to public investment.
But the Financial Times has reported that she has now abandoned those plans over fears they could anger both voters and backbench Labour MPs.
Culture Secretary Lisa Nandy would not be drawn into speculation that Ms Reeves has abandoned plans for the manifesto-breaking tax hike as she toured broadcast studios on Friday morning.
She told BBC Breakfast: “What I can tell you is as somebody who sits around that Cabinet table, who has discussions with Rachel and has known her for a long time, is that she won’t play fast and loose with people’s money.
“She does take her promises seriously, and she will do everything that she can to make sure that those choices are the fairest possible choices.”
Ms Nandy had earlier told Times Radio the Budget was “about making the fairest possible choices so that we can help the economy to grow, and we can also ease the pain that people have been put through over the last decade-and-a-half”.
UK government bonds and the pound have come under pressure amid the reported U-turn.
The speculation sparked a sell-off of government bonds, also known as gilts, with yields on longer-term 30-year gilts up by 14 basis points to 5.37% in early trading, and the yield on 10-year gilts up 12 basis points at 4.56%.
The yield moves counter to the price of bonds.
Sterling was also lower, falling 0.3% to 1.313 US dollars and 0.3% weaker at 1.128 euro.
Ben Zaranko, an economist at the Institute for Fiscal Studies think tank, meanwhile said the decision to back down on tax rises held “considerable risks”.
This included a “greater risk of damaging economic impacts” and that future U-turns could be more likely in future as a result of “lots of angry interest groups”.
Considerable risks with this approach: 1) revenues more uncertain; 2) greater risk of damaging economic impacts; 3) lots of angry interest groups, makes U-turns more likely; 4) viewed less favourably by bond market investors, many of whom were expecting an income tax rise. https://t.co/kdAnTvCert pic.twitter.com/kzCkzIXbtt
— Ben Zaranko (@BenZaranko) November 14, 2025
According to the Financial Times, the decision not to raise the tax was communicated to the Office for Budget Responsibility on Wednesday, when the Chancellor submitted a list of “major measures” to be included in her Budget.
An income tax rise would help her bridge a fiscal black hole estimated by some economists to be as much as £50 billion, but it would also break Labour’s clear manifesto pledge not to raise income tax, national insurance or VAT.
The prospect of a manifesto breach drew criticism earlier this month from Labour’s new deputy leader Lucy Powell, who said it would damage “trust in politics”.
Having vowed not to return to “austerity” through deeper spending cuts, the Chancellor could now have to rely on increases in a wider range of smaller taxes if she is to stick to her self-imposed rules on debt and borrowing.
The Financial Times suggested that one option would also be to reduce income tax thresholds while keeping tax rates the same, which could raise billions of pounds for the Treasury.
Ms Reeves began November with a speech in which she failed to rule out an income tax hike, having previously said that Labour would stick to its manifesto commitments.
On Monday she told the BBC that sticking to those commitments “would require things like deep cuts in capital spending” that could harm productivity growth.
Conservative leader Kemi Badenoch said the reported U-turn was “good (if true)”.
In a post on X, she added: “But one retreat doesn’t fix a Budget built on broken promises. Reeves must guarantee no new taxes on work, businesses, homes or pensions – and she should go further by abolishing stamp duty.”
Liberal Democrat deputy leader and Treasury spokeswoman Daisy Cooper described the move as an “11th hour screeching U-turn” but said struggling families could be spared “yet another punch in the stomach Budget”.
