Is Rachel Reeves about to break another tax pledge?

The Financial Times is reporting today (15 February) that Rachel Reeves is ready to break another promise by extending the freeze on personal tax thresholds (one of the UK’s least stealthy ‘stealth taxes’) beyond 2028 in next month’s ‘not a Budget’ Budget. Here are four quick points.

First, this report is plausible.

The current freeze on income tax and National Insurance thresholds and allowances (introduced by the last government in 2021) is due to end in April 2028, when they are supposed to be uprated in line with inflation again. Extending that freeze until the end of the OBR’s five-year forecast horizon could help to meet the fiscal rules.

Note also that Reeves’ October 2024 Budget had already extended the freeze on inheritance tax thresholds for a further two years, until 2030.

Second, though, extending the freeze on personal tax thresholds would be another broken promise and another increase in the tax burden on ‘working people’. Just read what the Chancellor herself said in her October Budget speech…

“I have come to the conclusion that extending the threshold freeze would hurt working people. It would take more money out of their payslips. I am keeping every single promise on tax that I made in our manifesto. So there will be no extension of the freeze in income tax and National Insurance thresholds beyond the decisions of the previous government.

From 2028-29, personal tax thresholds will be uprated in line with inflation once again. When it comes to choices on tax, this government chooses to protect working people every single time.”

Third, this speculation is likely to have a further chilling impact on confidence.

The simple fact that we are already talking about further tax increases – and that the Treasury appears to have endorsed these reports – shows that the current economic and fiscal strategy is not working.

Extending the threshold freeze would only raise another £4 billion or so annually, and then not until 2028-29, so this smacks of desperation. Inevitably, this will raise fears about other ‘tough decisions’ to come on both tax and spending.

Fourth and finally, it is of course still possible that Rachel Reeves will stick to her existing pledge – either because she’s bailed out by something else in the OBR’s new forecasts (perhaps some upward revisions to growth in later years, and a lower path for interest rates), or because she finds the money elsewhere.

This might also just be ‘kiteflying’ by the Treasury so that the Chancellor can rule out an unpopular option on or nearer the day, and look a little better.

Nonetheless, point three would still apply: the speculation alone is damaging enough.