Reeves accused of ‘rattling the markets’ after reported income tax U-turn pushes up borrowing costs – UK politics live

A source told the Guardian that plans to break the manifesto pledge on income tax had been ditched by the chancellor

Good morning. On Monday last week Rachel Reeves, the chancellor, gave a speech that implied it was all but certain she would break a manifesto promise and raise the main rate of income tax in the budget. Government officials made no attempt to challenge this idea, and some briefings said the decision was “nailed on”.

Only it wasn’t. There has been a U-turn. The news was broken by the Financial Times last night, in a story saying Reeves and Keir Starmer have have “ditched their manifesto-busting plan to increase income tax rates, in a dramatic U-turn ahead of the budget”. The Guardian was soon able to confirm the story and here is our report by Jessica Elgot, Pippa Crerar and Peter Walker.

Downing Street and the Treasury have been preparing the ground for weeks with Labour MPs for a breach of the manifesto. In particular, it has been stressed to Labour MPs that they should not speak out against the budget because of the effect any potential measures might have on the bond markets and the UK’s borrowing costs.

That message to MPs is likely to ring hollow if the chancellor has U-turned after days of internal warfare over a potential challenge to the prime minister’s leadership and the spotlight on briefings against the health secretary, Wes Streeting.

Lisa Nandy, the culture secretary, has not denied the FT scoop. But, in an interview on Sky News, she rejected suggestions that the reported U-turn made the government look chaotic.

Kemi Badenoch, the Conservative leader, has welcomed the reports saying the proposed rise in income tax has been ditched. On social media, commenting on a link to the FT story, she said:

Good. (If true).

Only the Conservatives have fought Labour off their tax-raising plans. But one retreat doesn’t fix a Budget built on broken promises. Reeves must guarantee no new taxes on work, businesses, homes or pensions -and she should go further by abolishing stamp duty.

UK government borrowing costs are rising this morning in response to the FT report. In our business live blog Kalyeena Makortoff says:

We’re getting some market moves as investors digest Rachel Reeves’ change in plans on income tax ahead of the autumn budget.

In the bond market, the yield on the UK’s 30-year gilt is up 12 basis points, suggesting there is a perception of growing risk to the fiscal position.

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Source: www.theguardian.com

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