By: Charlie Williams
One of the central pledges of the Labour Party’s 2024 manifesto was to not raise taxes on “working people”.
In the Budget on November 26, chancellor Rachel Reeves did not raise taxes in any obvious way that would constitute a clear breach of the manifesto. But she did freeze personal tax thresholds until 2031.
The freezing of both income tax and National Insurance contributions (NICs) is expected to raise £8.3 billion by 2029–30, according to the Institute for Fiscal Studies (IFS).
That extra revenue is the equivalent of raising the basic rate of income tax by 1p.
Income tax and NIC thresholds would normally increase in line with the Consumer Prices Index (CPI) measure of inflation, to ensure that taxation keeps pace with the real economy. Therefore, if the Chancellor freezes the threshold at which we begin paying tax, rising inflation and wages mean that more people are drawn into higher tax bands.
On page 21 of the manifesto, it states: “Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.”
A major reason why Labour pledged not to raise the main taxes was that it was relying heavily on economic growth. Higher growth would generate additional tax revenues for the Treasury, enabling greater spending on public services.
However, the Office for Budget Responsibility (OBR) has downgraded the growth forecast for the UK economy from 1.8 per cent a year to 1.5 per cent because it has cut its assumptions about long term productivity growth. This 0.3 percentage point reduction roughly equates to pushing up government borrowing by £14 billion in 2029–30, according to the IFS.
The IFS said that an additional 960,000 people will be paying a higher rate of tax as a result of the measures announced in the Budget.
Channel 4 News contacted the government for comment.
FactCheck verdict
The fact that the Chancellor gave a very unusual pre-Budget speech to the country on November 4, in which she warned about “hard choices” – leading to intense speculation that she would raise a major tax which would have been a very clear breach of the manifesto. But she ultimately did not.
The Treasury claims this was mainly due to better-than-expected economic forecasts set out by the OBR.
However, the freezing of tax thresholds does mean that almost 1 million of us will be paying more tax.
