Reeves' About-Face on Tax Raises UK's Public Finances by £7.5bn, Sparking Market Jitters.
Chancellor Rachel Reeves has pulled back from plans to raise income tax rates, instead opting for a two-year freeze on the threshold at which people start paying income tax. This decision, made after last-minute talks with Prime Minister Keir Starmer, is expected to bring in £7.5 billion more than previously forecast.
Reeves had initially aimed to increase income tax by up to 2p as part of efforts to plug a £20bn fiscal hole and boost headroom to £15bn. However, her decision on Wednesday marks a significant shift in the government's budget plans.
According to Treasury sources, Reeves is now looking for an extra buffer of £15 billion to shore up the public finances. The revised plan will focus on a broader range of measures, including tax rises on higher-value properties and landlords' income from rental properties.
While some experts welcome the decision as a pragmatic response to market volatility, others express concerns that it may have reduced headroom for further fiscal reforms. "The bond market is warning the chancellor that she cannot merely tax the 'rich' to fund her lavish spending pledges," says Kathleen Brooks, research director at XTB.
Labour insiders are also worried about the implications of Reeves' U-turn on income tax rates. A senior Labour MP warned that the decision may lead to a complete revolt among party members if further concessions are made to appease markets and critics.
The move has sparked debate over the government's fiscal strategy, with some questioning whether it will be enough to stabilize the public finances. As the UK government gears up for the budget in two weeks' time, market volatility continues to pose significant challenges for policymakers.
Chancellor Rachel Reeves has pulled back from plans to raise income tax rates, instead opting for a two-year freeze on the threshold at which people start paying income tax. This decision, made after last-minute talks with Prime Minister Keir Starmer, is expected to bring in £7.5 billion more than previously forecast.
Reeves had initially aimed to increase income tax by up to 2p as part of efforts to plug a £20bn fiscal hole and boost headroom to £15bn. However, her decision on Wednesday marks a significant shift in the government's budget plans.
According to Treasury sources, Reeves is now looking for an extra buffer of £15 billion to shore up the public finances. The revised plan will focus on a broader range of measures, including tax rises on higher-value properties and landlords' income from rental properties.
While some experts welcome the decision as a pragmatic response to market volatility, others express concerns that it may have reduced headroom for further fiscal reforms. "The bond market is warning the chancellor that she cannot merely tax the 'rich' to fund her lavish spending pledges," says Kathleen Brooks, research director at XTB.
Labour insiders are also worried about the implications of Reeves' U-turn on income tax rates. A senior Labour MP warned that the decision may lead to a complete revolt among party members if further concessions are made to appease markets and critics.
The move has sparked debate over the government's fiscal strategy, with some questioning whether it will be enough to stabilize the public finances. As the UK government gears up for the budget in two weeks' time, market volatility continues to pose significant challenges for policymakers.
. The bond market has been warning them for ages that they need to make some changes. It's just a matter of when, not if 
. I mean, Reeves was never going to push through with the 2p tax rise, especially after the markets started reacting badly. 
. And let's be real, £7.5bn is a pretty sweet deal 
. The thing that gets me is that some Labour MPs are already getting nervous about the party's stance on taxes 
. Like, chill out guys, it's just politics 
.
. The question now is whether they can stick to their guns (or should I say, their budget plans 
) for the rest of the year 
.
, sometimes you gotta make tough decisions and pivot 
. Reeves didn't go through with the income tax hike 'cause she realized that might not've been the best move 
. Sometimes you gotta be willing to adapt and adjust 
. And it sounds like Reeves is doing just that - taking a step back to look at the bigger picture 
. 
. It's like when you try something new and it doesn't quite work out as planned 
it's not like it's gonna make a difference in the grand scheme, we'll just be playing catch-up all over again 
and what's with the U-turn on tax rates anyway? does rachel reeves think she's some kinda magician who can wave her wand and make public finances disappear? 
! Now we're looking at an extra £15bn buffer, which is still not enough for some of us 
The question now is, will this be enough to calm down the markets and give everyone a sense of security 
? I'm keeping my fingers crossed that it'll work out, but I'm also bracing myself for more twists and turns 
. One thing's for sure, Reeves' about-face has sent shockwaves through the economy 
!