Labour will stick to Manifesto when it comes to Income Tax according to Treasury Minister

With speculation mounting around the possibility of tax rises in Rachel Reeves’ forthcoming Autumn Budget, Chief Secretary to the Treasury, Darren Jones has suggested today that the ‘headline rate’ of Income Tax is unlikely to increase later this year.

While the focus was on the Chancellor’s recently announced ‘£500 million Better Future Funds’ pledge, Jones, was questioned about the upcoming Autumn Budget and the potential for tax hikes.

Although the exact details remain speculative, Jones hinted that the rate of Income Tax is unlikely to rise, echoing what many financial experts have predicted: a possible extension to the current freeze on Income Tax thresholds beyond 2028.

Future Income Tax rates remain uncertain

Jones, Speaking on ITV’s Good Morning Britain said: “The thing I can tell you is that our manifesto commitment coming into this election was that we were not going to increase the headline rate of income tax or employee national insurance on working people — in the pay slips that people get when they go to work — or on VAT, because we know that that disproportionately affects people on lower incomes, as they spend more of their money on the day-to-day shop, essentially.”

It remains unclear what Rachel Reeves will ultimately announce in the Autumn budget. However, it is worth noting that Labour’s manifesto does not include the term ‘headline rate’. Instead, the party has pledged not to raise the basic, higher, or additional rates of Income Tax, further heightening the uncertainty surrounding potential fiscal changes.

In addition to this, the Government has yet to clarify whether the current freeze on personal tax thresholds will be extended.

Is another Tax freeze extension on the horizon?

While such a move would technically honour Labour’s manifesto commitments, extending the freeze on the Income Tax will have a detrimental effect on taxpayers, due to the effects of fiscal drag.

Income Tax thresholds in the UK have remained frozen since the 2021/22 tax year. As wages rise, often in line with or exceeding inflation, more people are being pulled into higher tax bands or are paying tax for the first time.

There are growing suggestions that the freeze could be extended beyond 2028. Given the ambiguity around Rachel Reeves’ tax and spending strategy thus far, this would not be a surprise move.

In her most recent Budget, Reeves extended the freeze on inheritance tax until 2030. It is therefore conceivable she may adopt a similar approach with Income Tax.

The real-world impact of potential Income Tax freezes

If the freeze is extended to 2030, it could raise an estimated £7 billion for the Government. This would support efforts to meet its fiscal rules and balance the books, but the cost would fall on working individuals and businesses.

As it stands, it is unclear exactly what the Autumn Budget will hold. Nevertheless, it is crucial for both individuals and businesses to prepare for the possibility of further tax changes.

Preparation is key to managing potential tax changes

Although no final decisions have been confirmed, now is the time to be proactive in managing your financial affairs in the most tax-efficient way possible.

Begin by assessing your current tax position. Understanding where you stand financially can help you plan effectively for any changes announced in the Autumn Budget. Take full advantage of available reliefs, allowances, and tax planning strategies to mitigate any future impact.

If you would like professional guidance on how best to prepare, please get in touch with our experienced tax team today.