UK Income Tax and the 2025 Budget: Did She or Didn’t She ?

 

As a follow-up to the budget, and my recent pre-budget blog on the likelihood of Income Tax rises, I’ve tried to answer the simple question in the title i.e. Did Labour break their manifesto promises by raising the rate of one of the 3 main taxes – i.e. Income Tax, NI or VAT ?

The short answer to this question is...Yes, they did, despite their protestations to the contrary. 

Read on to find out why.....

November' budget was a complex affair, and seemed almost to be designed to confuse. It was widely anticipated by industry and the general population as a "death by a thousand taxes", and certainly lived up to the prediction.

Much was made of sticking to manifesto promises, almost to the point of obsession by the Party, in the weeks before the budget, to the extent that Reeves was eventually forced to 'chicken out' of her planned 2p across the board rises in direct tax on income in order to head off a widely anticipated rebellion by her 'unruly' back-benchers. 

The resulting ‘hotch potch’ of miscellaneous alternative taxes hastily put together to make up the shortfall and provide extra budgetary headroom, while still allowing a splurge on extra benefits, was what we were presented with on November 26th. 

As a bit of additional 'entertainment' to follow 6 weeks of frenzied speculation and counter-speculation, the OBR (they who we all know must be taken account of  by government - or else!) managed to ruin Reeves' day by releasing details of the budget on their website all of 40 minutes before she started speaking. This prompted a swathing 'telling-off' of the government team by the Deputy Speaker for disrespect to the House, and red faces all round for the offenders. Reeves was quick to blame the OBR for the incident in her 'apology' to the House, with inevitable consequences...which we'll see in the update to this blog. The old adage about the ability or otherwise to 'run p***-ups in breweries' springs to mind.

Few of those canvassed by the media actually seemed to be pleased with the budget itself, except perhaps those with large families on benefits (we should probably expect a surge in new 'celebratory' births next August). The overwhelming feeling after all the hype in the general population seems to be: “..it could have been worse, and thank God it's over with - at last!…”. As Churchill probably would have remarked, "..Never has so much been made of a budget so far in advance by so many, and benefitting so few..."

The markets also seemed to take it in their stride, and will no doubt have approved of the extra headroom of £26Bn Reeves awarded herself at the end of the period...with no 'Tory black holes' to be seen anywhere (but being black, you wouldn't see them coming anyway, would you, unless perhaps you work at the OBR!).

Reeves no doubt heaved a sigh of relief after her speech, and will have congratulated herself on steadying the ship without breaking manifesto promises….

The trouble is…she did break them….and here’s how…

The Labour Manifesto of June 2024 explicitly stated on p19 of the document: “…we will ensure taxes on working people are kept as low as possible. 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.”

In her speech, while discussing fairness with regard to national insurance (NI) charges, Reeves announced that, in order to compensate for the fact that Landlords do not pay NI on their rental income, from April 2027, all income from Savings interest and Rental income would both be subject to increased rates of 22%, 42% and 47% for basic, higher and additional rate taxpayers respectively. Dividend income will also be subject to the same 2p increase for both its rates, the changes being applicable even earlier, from April 2026.

In effect, by doing this, she has created 3 new rates of income tax, applicable only to rental, savings and dividend income. 

Now as you can see from the quote above, the manifesto commitment wording made no stipulation about the category of income tax it referred to, thus including any form of income tax in its promise of no tax rises. Ergo, since both rental and savings income are still ‘income’, the promise on income tax has been broken by intent; unless we see another screeching u-turn due to back-bencher pressure before next April, the promise will actually broken when the first differential is applied. HMRC have already confirmed the changes on their website, so there is really no room for doubt here.

So far I haven’t picked up any indication in the media that this particular transgression has been spotted, or at least publicised at all widely – this may be because it was carefully embedded deep in the budget text and hardly given a mention during the speech. This made it easy to miss. It was also cunningly forward dated, so won't have an immediate impact on income streams. It could also simply have been submerged in the back-bench and union fury over the much higher-profile manifesto break caused by the sharp u-turn on Day 1 worker's rights protection. 

It could even be that Reeves herself doesn’t yet realise the true political implications of what she has done. It’s more likely, however, that No 10 are well aware of the additional manifesto 'bungle', and are waiting to see whether everyone is so glad to finally 'get the whole darn thing over with' that it just gets ignored and no one even bothers to complain. 

Given the almighty fuss Labour themselves made about ‘sticking to our manifesto commitments’, I for one think we should at least call them to account over it.....

I rest my case.....

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Update 29.11.25: It looks as though the question I raised in the title of this blog will now need answering again in relation to another issue: 

Did Reeves mislead a) the public or b) the Markets or, worse still from her point of view, c) the House on the UK's financial position in the run up to the budget ? 

All this has surfaced as a result of the release by the OBR of a letter they sent to Reeves in September informing her that she had more headroom than they originally expected. This upgrade to the forecast was made possible because of higher tax receipts expected from forecast wage increases, and the implication was that there would be no black hole to fill as a result. 

In releasing this now, the OBR have effectively 'shopped' Reeves, presumably to get their own back after the very public telling off they got on Budget Day for releasing budget content details early. 

Make no mistake, though, this isn't just a spat between the OBR and the Treasury as some are portraying it - 'Our Rachel' is actually in quite a bit of trouble here....

If it can be proved that she deliberately withheld this information, or, worse still, actually lied to the House, she will have broken the ministerial code, and would normally be obliged to resign. No 10 are currently taking the 'nothing to see here' approach so far, which effectively means they are in damage assessment mode, and have not yet made a decision on Reeves' fate. 

Were Reeves not one of Starmer's staunchest allies, and his only real hope of 'weathering the ongoing unpopularity storm', she would already be gone. His propensity for losing female ministers is already legendary (6 so far and counting), so you can be sure that as soon as he feels she has become a threat to his own job, she will be number 7. He has also confirmed that he knew about the OBR letter prior to the budget, thus implicating himself as an accessory in any ministerial code transgression Reeves is found to have made.

Look out for a declaration of full confidence from the PM in his Chancellor - as we have seen, this is usually the most reliable indicator of an imminent ministerial departure....

As I've had occasion to mention a number of times in previous blogs about this hapless government's performance: "...you couldn't really make it up, could you ?"....

Just goes to show that black holes should be handled very carefully in politics - you can't see them coming ...and they have a habit of engulfing you without notice !

Update 30.11.25: Oops, Starmer has just announced he will be making a speech today offering 'full support' for his chancellor's budget. There have also been reports of sounds of a scythe being sharpened inside No 10 overnight. Not long now, I suspect..... 

The announcement we, and I suspect most of his party, will now be waiting for is that he has full confidence in himself - and arguably he may have just done that in his interview with Kuensberg on 4th January by insisting he will still be in his job in a year's time...watch this space to see what happens....

First published 27.11.25; Updated 6.1.26