Sir Keir Starmer has denied breaching Labour’s election manifesto pledges on tax in a Budget that will drag millions of people into higher tax brackets.
The prime minister on Thursday insisted that “we kept to our manifesto in terms of what we’ve promised”, but conceded “we are asking people to make a contribution” to fund spending on the NHS and education.
In her Budget on Wednesday Rachel Reeves did not raise the rates of income tax, VAT or national insurance — sticking to a pledge in last year’s election manifesto — but announced an extension in a freeze on income tax thresholds to 2031.
The move will draw millions more people into the tax net, and the UK’s fiscal watchdog predicted that one in four people would be caught by the 40 per cent higher rate of tax by the end of the forecast period.
On Thursday the director of the Institute for Fiscal Studies think-tank said she believed Reeves had “breached” Labour’s manifesto pledge to not raise taxes on working people through its tax changes.
Asked whether a decision to abolish the two-child benefit cap, part of a wider increase in welfare spending, was designed to placate Labour MPs, Starmer told Sky News: “This is not a decision of the last few weeks or months . . . It’s a moral mission. It is a personal mission.”
Labour MP and former shadow chancellor John McDonnell described the lifting of the cap — a move popular with Labour backbenchers that will cost £3bn a year — as a “huge victory for the left”.
But Reeves insisted that she was “in charge of economic policy” rather than Labour MPs.
In other developments on Thursday:
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The chancellor delivered her Budget following the unprecedented early release of the Office for Budget Responsibility’s Budget documents. The chair of the fiscal watchdog on Thursday said that the mistaken release came after an “external person” was able to access the documents. On Wednesday the OBR had said the documents were published on its website.
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The chief executive of the Resolution Foundation warned of “plenty more bracing Budgets” until the outlook for economic growth improved.
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Some of the Budget optimism in the gilt market faded, as investors’ initial relief gave way to questions over the credibility of the chancellor’s plans to rein in borrowing just ahead of the next general election.
