Nightmare for Labour as chancellor reportedly considering raising income tax

Labour is reportedly considering breaking its manifesto pledge and raising income tax to help plug a £30bn hole in the public finances, according to sources who spoke to The Guardian.

The party is reportedly considering a 1p rise to the basic rate, which would raise around £8bn. It could consider taxing higher or additional rates of income tax instead, but this would reportedly raise lower amounts of £2bn and £230m, respectively.

https://www.theguardian.com/money/2025/oct/23/rachel-reeves-is-considering-raising-income-tax-to-reduce-deficit-sources-say

Laura Purkess, personal finance expert at Investing Insiders, said: “The fact Labour is seriously considering an income tax rise shows how dire the numbers must really be.

“It’s a political nightmare for the party and would be a constant point-scorer for the opposition and Reform, which will relish in them U-turning on another manifesto pledge.

“Labour are probably kicking themselves for ever promising not to raise income tax, given a 1p rise would reportedly raise around £8bn immediately. That’s nothing to sniff at when the finances are in such a poor state.

“If the party raised higher rates of tax, it would be less damaging politically, but would raise a lot less money.

“Political point scoring aside, it’s regular people who will really feel the impact of this. A tax rise right now will pile further pressure on household finances that are already seriously squeezed from all angles, piling further pressure on household finances that are already seriously squeezed from all angles.

“Many families don’t have anything extra to spare, and will have to make more cuts to their living standards to accommodate this.

“That can cause people to neglect other important financial decisions, such as creating or updating a will, setting up a retirement plan, or putting protection policies in place for ill health or loss of their income.

“Taking more money from people’s purses right now will also reduce spending and damage their confidence to invest – something Labour has been increasingly pushing for – which would have a knock on the wider economy.

“Unfortunately, it looks like Labour is in a real pickle, so if they do decide to stick to their manifesto pledge, we can probably expect a number of other levers being pulled to make up for it.”