Reeves Ditches Income Tax Rise – and Streeting Celebrates

Rachel Reeves has dramatically ditched Budget plans to hike income tax, leading Wes Streeting to effectively claim victory as he publicly declared that he had not supported the rise. The Mail has more.

The Health Secretary – seemingly emboldened by a botched Downing Street ‘hit job’ on his leadership ambitions this week – publicly declared that he had not supported the move.   

The intervention could fuel speculation about Keir Starmer’s position, as the sense of chaos around the looming Budget grows.

Labour insiders are in despair about shambolic briefing ahead of the critical package, with blame being cast on Treasury Minister Torsten Bell and No 10 Chief of Staff Morgan McSweeney.  

The pound has taken a hit after the latest extraordinary U-turn emerged overnight. Interest rates on gilts – the main way the Government borrows money – also spiked in early trading, although they eased back slightly after the Treasury issued a statement stressing the Chancellor’s determination to shore up the public finances.

With Ms Reeves needing to close a fiscal gap of up to £40 billion on November 26th, Analysts warned that the UK could be facing a “credibility shock” after the maelstrom of infighting and public contradictions, while even Labour’s favourite think-tank branded the situation is “not normal”. 

It leaves her scrambling to find other ways of filling the estimated £30 billion black hole in the books, less than a fortnight before the critical package is unveiled. 

The Financial Times said she is now looking at cutting tax thresholds to drag millions of people deeper into the system. That would represent a huge expansion of the hated ‘stealth raid’ that has been in effect for years. 

Ms Reeves could then attempt to argue that the manifesto has been abided by – but critics would point out that ‘working people’ were suffering.

Ms Reeves’s shift in approach appears to have been prompted by panic in Downing Street over the threat to Sir Keir.

Only last week the Chancellor was delivering a highly unusual pre-Budget speech warning that “everyone” will have to “contribute” to shoring up the Government’s books. She then stated publicly that cutting capital spending would be the only way to abide by the manifesto promises.

That was seen as confirmation of broad-based tax increases.

Nigel Green, CEO of global financial advisory deVere Group, warned that “mixed signals” were spooking the markets.

“This is exactly how credibility shocks begin,” he said.

“Gilts are sliding, borrowing costs are climbing, and sterling is weakening because markets fear the government is improvising. There’s nothing investors hate more than indecision disguised as strategy.”

He added: “The reaction is unmistakable. Bond traders are telling the Treasury that they will not tolerate mixed signals. They saw what happened during the Truss turmoil and they’ll not wait politely for clarity. They’re pricing risk in real time.”

Worth reading in full.