Chancellor Rachel Reeves has issued the strongest indication yet that the Labour government is prepared to break its key election promise not to raise income tax, National Insurance, or VAT. The warning comes ahead of the highly anticipated Budget set for November 26, 2025.
A Stark Choice for the Nation
Speaking to BBC Radio 5 Live on November 10, the Chancellor framed the government's position as a stark choice. She stated that adhering strictly to the manifesto tax pledges would necessitate "deep cuts in capital spending" on vital national projects. Reeves argued that such cuts to investment in rail, road, energy, and digital infrastructure have been the primary cause of the UK's poor productivity and growth in recent years.
The Chancellor's comments signal a clear preparation of the public for difficult decisions, suggesting that the tax lock promised by Sir Keir Starmer during the landslide election win is no longer considered sustainable. Reeves cited a perfect storm of economic pressures, including ongoing wars in Ukraine and the Middle East, and global trade tensions exacerbated by Donald Trump's tariffs.
What the Budget Could Mean for Your Wallet
While a direct increase in income tax rates is considered politically risky, the Treasury is examining other avenues that would effectively increase the tax burden for millions.
The most likely move is a freeze on income tax thresholds. This means the points at which you start paying the basic or higher rates of tax would not rise with inflation or wages. Consequently, even a modest pay rise could push you into a higher tax band, resulting in a larger portion of your income being taxed and a smaller take-home pay in real terms.
Furthermore, though Labour vowed not to hike National Insurance for employees, an increase for Employer National Insurance contributions is rumoured. This would directly target businesses, but economists warn the cost could be passed on to workers through slower wage growth, reduced bonuses, or even job cuts, and to consumers through higher prices for goods and services.
In a potential shift, reports suggest the government may also target wealthier households through changes to capital gains or inheritance tax, focusing on those with significant investments or property assets.
A Glimmer of Support for Families
Amid the tough news on taxes, the Chancellor offered one significant area of potential relief. Reeves strongly hinted that the government will scrap the controversial two-child benefit cap, labelling child poverty as "a cost to our economy."
Removing this limit would mean that families with more than two children would become eligible for extra child benefit payments, providing direct financial support for everyday costs. However, this policy shift would come with its own price tag for the Treasury, potentially needing to be funded by the very tax increases being considered elsewhere.
Reeves defends her approach, insisting any changes will be made "in the national interest" to protect public investment and secure long-term economic growth. She points to her first Budget's early successes, where higher taxes on businesses and the wealthy allegedly helped stabilise public finances and cut NHS waiting lists.
Opposition is mounting, however. Conservative shadow chancellor Sir Mel Stride has accused Reeves of "pulling the wool over voters' eyes," claiming she has already raised taxes by £40 billion. With global instability continuing to squeeze the public purse, the Chancellor's difficult decisions are set to become a reality for UK workers very soon.
