U-Turn on Tax Plans

The government has scrapped plans to break their manifesto promise and increase income tax rates in a massive U-turn less than two weeks after the Budget. The decision comes after a painful few days that led to a change of heart in Downing Street, with the Treasury and Number 10 declining to comment.

Background

The Chancellor had appeared to pave the way for groundbreaking tax rises in the Budget on November 26th, speaking of difficult decisions and insisting that she could neither increase borrowing nor cut spending. The public was told that "everyone has to do their part" to stabilize the economy.

The Decision to Back Down

The decision to back down was communicated to the Office for Budget Responsibility in a "major action" filing on Wednesday. The Chancellor will now have to fill an estimated £30bn black hole with a series of narrower tax rise measures and is also expected to freeze income tax thresholds for a further two years after 2028, which is expected to raise around £8bn.

Reaction

Conservative shadow business secretary Andrew Griffith said: "We have had the longest budget preparation period we have ever had, damaging the economy with uncertainty, and yet – with just a few days to go – it is clear there is chaos in No 10 and No 11."

How Did We Get Here?

For weeks the government has been working on ways to break its manifesto promise not to increase income tax, national insurance, and VAT for working people. Officials and ministers were working on a proposal to raise the basic rate of income tax, perhaps by 2p, while cutting national insurance contributions for those paying the basic rate of income tax.

A Tough Week for the Prime Minister

The change of plans came after the prime minister faced a leadership crisis after his allies warned his rivals that he would fend off any coup attempt after the budget was passed. The saga has further damaged the prime minister and increased MPs’ concerns about his suitability to lead the party into the next general election.

Conclusion

Insiders clearly concluded that the sour mood in the party, coupled with recent blows to the prime minister’s political capital, made tax increases that break the election manifesto simply too risky at the moment. The U-turn adds to a sense of chaos considering the Chancellor publicly announced tax rises in last week’s press conference.