Labour Chancellor Rachel Reeves Reported Considering 2p Income Tax Hike Amid £30bn Deficit

Chancellor Rachel Reeves faces mounting pressure to address a £30 billion fiscal gap by reconsidering her tax strategy, with prominent think tanks advocating for tax increases that would affect middle-income families rather than focusing exclusively on the wealthy. The Institute for Government and the Resolution Foundation both suggest raising income tax by 2p while simultaneously cutting employee National Insurance by the same amount, a measure designed to broaden the tax base to include pensioners, landlords, and the self-employed, thereby protecting workers' pay packets. These proposals challenge Labour's manifesto commitment to leave income tax, VAT, and National Insurance rates unchanged and have sparked warnings from business groups and Tory politicians about potential economic harm and recession risks. Additional suggested measures include levies on sugar, long-haul flights, and small businesses, alongside calls to lower VAT thresholds to improve tax fairness and revenue. Reeves is expected to face a difficult balancing act in the upcoming budget, needing to raise revenue without stifling economic growth or breaking manifesto promises, while managing investor concerns over borrowing costs. The debate reflects broader tensions between fiscal responsibility, economic growth, and political commitments ahead of the November budget.