Labour's Tax Raid on the Wealthy: Chancellor Faces Growing Pressure to Break Manifesto Pledge

Pressure is mounting on Labour's chancellor, Rachel Reeves, to break the party's manifesto pledge and raise taxes on the wealthiest earners. Ministerial sources have revealed that changes to the top rate of income tax have been discussed within the government, with some sources suggesting that an increase to the 45p rate is being considered. This move would exceed the 1p increase to income tax that Reeves is also understood to be considering, and would effectively break the manifesto pledge not to increase income tax.

Reeves is facing opposition from within her own party, with some Labour MPs calling for a more aggressive approach to taxing the wealthy. Meanwhile, experts have warned that making changes to the top rate of income tax would not raise as much as some in Labour hope, with the Institute for Fiscal Studies estimating that a 1p increase in the additional rate would only raise around £200 million.

Key Takeaways:

• Changes to the top rate of income tax have been discussed within the government, with some sources suggesting that an increase to the 45p rate is being considered.
• The proposed changes would exceed the 1p increase to income tax that Reeves is also understood to be considering and would break the manifesto pledge not to increase income tax.
• The Institute for Fiscal Studies estimates that a 1p increase in the additional rate would only raise around £200 million.
• Experts warn that the proposal to reduce the threshold where the 45p rate kicks in from £125,140 to £100,000 would impact the so-called "HENRYs" (high earners but not rich yet) who are already hit by the tax and benefits system.
• The move would also mean that benefits like support for childcare would be lost at a lower income level.
• Some Labour MPs are calling for a more aggressive approach to taxing the wealthy, including Support for taxing property and other assets.
• The treasury has said that that at Budget she will strike the right balance between making sure that we have enough money to fund our public services, whilst also ensuring that we can bring growth and investment to businesses.

Statistics:

• £30-40 billion: The estimated budget hole that the government is facing.
• 1.2 million: The number of people who pay the 45p rate of income tax.
• 45p: The current top rate of income tax, applied on income above £125,140.
• £200 million: The estimated revenue raised by a 1p increase in the additional rate of income tax.
• £1 billion: The estimated revenue raised by a 5p rise in the 45p top rate of income tax by 2029-30.
• £2 billion: The estimated revenue raised by decreasing all main allowances, starting and basic rate limits by 1 per cent.

Sources:

• The Independent
• Institute for Fiscal Studies (IFS)
• National Institute of Economic and Social Research (NIESR)
• Treasury spokesperson