UK Chancellor Reeves Plans Income Tax Hike to Address £35 Billion Deficit

UK Chancellor Rachel Reeves faces a significant fiscal challenge ahead of the November Budget, needing to close a public finance gap estimated between £32 billion and £50 billion due to weak economic growth, higher borrowing costs, and downgraded productivity forecasts. To restore fiscal headroom and meet her spending rules without increasing borrowing, Reeves is considering tax increases, particularly on income tax, which could mean a rise of up to 3p in the basic rate, despite Labour's manifesto pledge not to raise direct taxes such as income tax, VAT, or National Insurance. Economic experts warn that avoiding an income tax rise by raising multiple smaller taxes could cause unnecessary economic damage and complexity, while spending cuts remain an alternative. Reeves is also exploring other tax options, including a mansion tax, gambling tax, and bank profits levy, but the scale of the financial shortfall makes a breach of manifesto commitments increasingly likely. The political and economic stakes are high as the Chancellor balances the need to stabilize public finances with the impact on households already facing inflationary pressures. Reeves has emphasized that the UK does not have to accept economic stagnation, indicating her intent to take difficult decisions to manage the crisis.