With Chancellor Rachel Reeves set to deliver the Budget next Wednesday, a major political row has erupted over whether the government might break its manifesto commitments on income tax.
The Core Manifesto Promise
Labour's 2024 election manifesto contained a clear pledge: "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."
This commitment has become the centre of a heated debate at Westminster. Conservative leader Kemi Badenoch repeatedly challenged Prime Minister Keir Starmer during Prime Minister's Questions, demanding he "confirm today that he will not break another promise by freezing income tax thresholds".
Threshold Freezes Versus Tax Rates
The crucial distinction lies between income tax rates and thresholds. While Labour explicitly promised not to increase the basic, higher, or additional rates of income tax, the manifesto made no specific mention of the thresholds at which these rates apply.
Personal tax thresholds determine how much someone can earn before they start paying income tax or move into a higher tax band. These thresholds have been frozen since April 2022 under decisions made by the previous Conservative government.
Extending the freeze creates fiscal drag - as wages increase over time, more people pay tax or pay tax at higher rates than if thresholds had risen with inflation. The current freeze is scheduled to end in April 2028, but speculation suggests Chancellor Reeves might extend it for another two years.
Reeves's Own Words Come Back to Haunt
Complicating matters for the government, Rachel Reeves herself appeared to link threshold freezes to Labour's manifesto commitments during her 2024 budget speech. She stated: "I am keeping every single promise on tax that I made in our manifesto, so there will be no extension of the freeze in income tax and national insurance thresholds beyond the decisions made by the previous government."
This statement has been widely quoted in recent days, including by Kemi Badenoch during PMQs. When Full Fact asked the Labour Party whether Ms Reeves's comments mean she believes extending threshold freezes would breach manifesto commitments, we received no reply.
The Treasury has downplayed reports about potentially lowering thresholds, which would cause even more people to pay higher taxes without any wage increase. A Treasury spokesperson told Full Fact: "We do not comment on speculation around changes to tax outside of fiscal events. The Chancellor will deliver a Budget that takes the fair choices to build strong foundations to secure Britain's future."
While the government appears to have ruled out increasing headline income tax rates after receiving improved forecasts from the Office for Budget Responsibility, the question of threshold freezes remains unresolved ahead of next week's crucial Budget announcement.
