The government has abandoned its plan to raise income tax rates, and the way it has done so makes one thing brutally clear. This is an administration that cannot control its own decisions, its own messaging or even its own MPs. Less than two weeks before the budget, Starmer and Reeves have pulled the plug on a policy they spent days preparing the public for.
The reversal, first reported by the Financial Times, wasn’t the result of fresh economic insight. It was the result of panic. Downing Street backed down because they realised that pushing through a manifesto-breaking tax rise would trigger a backlash they simply were not prepared to handle. For a government that spent the last week lecturing the country about “difficult choices”, it is a remarkable collapse.
Last week, the chancellor was practically walking voters to the conclusion that taxes had to go up. She insisted there was no room to borrow more and no space to cut spending. Everyone, she said, “had to play their part”. Yet the moment MPs voiced their anger and the polls twitched, the plan was dumped.
This isn’t a course correction. It is an admission that the government never had a convincing plan to deal with the £30 billion black hole sitting in front of them. The Office for Budget Responsibility was informed only on Wednesday that the tax rise had been scrapped, leaving the budget team scrambling to stitch together smaller measures to plug the gap. Freezing income tax thresholds for another two years is expected to be one of them, raising roughly £8 billion, but that still leaves ministers flapping around for the rest.
The abandoned proposal itself shows how strained things have become. Officials were weighing a 2p rise in the basic rate of income tax and then trying to disguise it with a national insurance cut for the same group. In other words, they were trying to break their manifesto pledge while pretending not to. Higher-rate taxpayers, landlords and pensioners would have taken the hit, while Starmer could claim he was still protecting “working people”.
The government had also been preparing changes to the two-child benefit cap to address rising child poverty. Whether that survives the U-turn is anyone’s guess. Nothing about this process suggests joined-up thinking or long-term planning.
All of this is happening against the backdrop of a leadership wobble so serious that Starmer’s allies have been warning rivals not to attempt a coup after the budget. The resulting briefing war against Wes Streeting led to the prime minister apologising to his own health secretary. Instead of focusing on the country’s finances, ministers have been busy firefighting their own internal feuds.
The government is drifting into its first budget with no coherent strategy, no political discipline and no ability to hold a steady line for more than a few days. After a week of tough talk about tax rises, Starmer and Reeves have folded under pressure and left the country guessing how they plan to fix the public finances.
If this is how they handle the run-up to the budget, it is difficult to imagine how they plan to handle the budget itself.