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British Finance Minister Rachel Reeves is reportedly preparing to announce a rise in personal income tax in her November 26 budget, according to The Times, as the government looks to meet fiscal targets and maintain public spending.
Reeves has informed the Office for Budget Responsibility (OBR) that a tax increase is among the “major measures” being considered for the upcoming budget. While the Chancellor could still revise her plans, the official submission indicates the proposal is under serious consideration.
Proposed measures
The Times reports that Reeves is weighing a two pence increase in income tax alongside a two pence reduction in National Insurance contributions. The move is designed to shift the tax burden away from workers and onto other groups, including pensioners and landlords.
Additionally, Reeves is reportedly considering capping the National Insurance cut at earnings below £50,270, with lower earners seeing a reduction from 8% to 6%, while income above that threshold continues to be taxed at 2%. Economists estimate the combined effect could raise over £6 billion ($8 billion) annually.
Political and economic context
The potential tax rise signals a departure from Labour’s election pledge not to raise major taxes. Speaking on Tuesday, Reeves said that “each of us must do our bit”, suggesting that broad tax increases could be used to avoid austerity while sustaining government spending amid high debt, weak productivity, and persistent inflation.
The National Institute of Economic and Social Research, a UK think tank, has urged the Chancellor to implement £50 billion worth of fiscal measures to safeguard economic stability and reassure markets.
Market implications
Analysts say the proposed measures will be closely watched by bond investors and financial markets, as they could influence confidence in the UK’s fiscal trajectory ahead of the end-of-year budget.
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