The article describes how UK Chancellor Rachel Reeves had considered raising income tax in her upcoming Budget — but then dropped those plans, reportedly because of improved economic forecasts. (The Independent)
Key points:
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Originally, there was strong expectation that the government might raise income tax rates to fill a large “black hole” in public finances. (The Independent)
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But just before the Budget, plans to hike income tax rates were reportedly abandoned, as fiscal forecasts improved and expected revenues rose. (The Independent)
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Instead of raising the rate, the government is likely to extend a freeze on tax thresholds, meaning more people will be pushed into higher tax bands over time — effectively raising what many pay, without formally changing the rates. (The Guardian)
That, in essence, is the “U‑turn” the article describes: no formal income tax rate rise, but other changes that will likely increase tax burdens.
Rachel Reeves & UK Income Tax
In late 2025, all eyes were on UK Chancellor Rachel Reeves. The government faced a big hole in its finances — estimates ranged from £20 billion to £50 billion — and many expected the autumn Budget to include big tax hikes. Among the most talked‑about was a rise in income tax. But in a surprising turn, Reeves decided not to raise the official tax rates. Instead, she went for a more subtle move: freezing tax thresholds. This blog delves into what really happened, what the alternatives were, and what it means for ordinary people.
Background: Why Did Tax Rises Seem Likely?
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When Reeves became Chancellor, the UK’s public finances were under huge pressure — weak productivity growth, growing debt, and rising costs for public services. (The Guardian)
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To fill the gap without cutting public services, the government considered raising taxes. Specifically, they looked at raising income tax rates, possibly by 1–2 percentage points. (The Independent)
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Some proposals even included cutting National Insurance (NI) for workers but increasing income tax — a shift meant to protect employees while spreading taxes more broadly (to pensioners, landlords, the self-employed). (The Guardian)
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Other ideas floated included new “mansion taxes” on high-value properties, hikes in VAT or capital gains tax, and removing certain tax breaks (e.g., on private school fees). (The Independent)
Because of all this, many thought 2025’s Budget would mark a major tax rise — the most significant since the early 1990s. (The Independent)
What Changed: Why the U‑Turn?
Just before the Budget, reports emerged that Reeves had scrapped plans to raise income tax rates. (The Independent)
Why?
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The Office for Budget Responsibility (OBR) gave a more favorable economic forecast than expected. Wage growth had been stronger, and tax receipts were rising — meaning the fiscal hole was smaller than feared. (The Guardian)
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Rather than risk political backlash (breaking Labour’s manifesto promise not to raise income tax, VAT, or NI), the government opted for more subtle measures. (ITVX)
In essence: better economic data + political risk = decision to hold off on formal rate hikes.
What Will Change Instead: Threshold Freezes & Other Tax Moves
Although headline tax rates won’t rise, the Budget still contains several measures that will likely increase many people’s tax bills:
🔹 Freeze on Income Tax Thresholds
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The thresholds for basic and higher-rate income tax will be frozen (i.e., left unchanged) for two more years. Over time, as people get pay rises, more of their income moves into higher tax bands. This effectively increases tax revenue without raising the tax rate itself. (The Guardian)
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This freeze is expected to raise around £7.5 billion. (The Guardian)
🔹 Pension & Salary‑Sacrifice Reforms
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The government is considering ending certain tax breaks — for example, on salary‑sacrifice pension schemes, which could raise around £2 billion. (The Independent)
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They may also alter pension tax reliefs, which could impact retirees or those near retirement. (The Independent)
🔹 New Levy on Electric Vehicles, Housing Taxes, and Other Measures
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There is talk of a new tax on electric vehicles. (The Guardian)
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A “mansion tax” on high-value homes (over £2 million) has been discussed. Owners of expensive properties might face an annual charge based on how much their property exceeds that threshold. (The Independent)
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Capital Gains Tax (CGT) rates have already risen — lower-band CGT now 18% (from 10%), higher-band 24% (from 20%) under earlier budget announcements. (cnbc.com)
These moves may raise significant revenue while avoiding the political blowback of raising headline income tax rates.
What This Means for You (and the Average Person)
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Even if the income tax rate stays the same, many people will end up paying more tax — because threshold freezes push more income into taxed bands.
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Those on modest wages who get pay rises may see larger portions taxed more heavily over time.
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Pensioners, landlords, and self-employed people — who don’t pay NI — may be more impacted if the government shifts more of the tax burden to income tax.
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Owners of expensive houses, or people investing heavily (subject to CGT), could see significant increases in their tax bills.
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On the flip side, the government may avoid large spending cuts, helping to protect public services.
Why the Government Did This (From Their Perspective)
From Rachel Reeves’ point of view:
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The UK needs to tackle a massive fiscal shortfall — driven by weak productivity, high public spending, and growing debt. (The Guardian)
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She wants to avoid “deep cuts” to public investment, which could hurt growth, jobs, public services, and overall economic stability. (The Independent)
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By using threshold freezes and targeted reforms (like removing pension tax breaks or taxing EVs), the government can raise revenue in a politically more acceptable way.
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It also avoids breaking the Labour manifesto pledge too openly — even if the spirit of the promise is arguably bent. Critics note that while rates are unchanged, the effect is a de facto tax increase. (The Guardian)
Criticisms & Concerns
Not everyone is happy with the approach. Some common criticisms:
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It’s still a tax hike by another name — freezing thresholds or removing breaks may raise revenue, but for many people, it feels like their taxes are going up.
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Political trust — Labour’s manifesto had promised not to raise major taxes on working people (income tax, NI, VAT). Even if formal rates don’t change, many see threshold freezes as a betrayal of that promise. (ITVX)
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Regressive effects over time — If wages rise with inflation, people may progressively move into higher tax bands, paying more without a real increase in real income.
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Impact on investment & growth — Higher taxes on property, pensions, and investments might discourage savings and investment — potentially hurting long-term growth. Some critics warn that relying too much on tax revenue (rather than boosting growth) can be risky. (The Guardian)
Conclusion
Rachel Reeves’ 2025 Budget shows that tax policy is not always about headline numbers. Even without increasing the official rate of income tax, the government found ways to raise billions by freezing thresholds, cutting tax breaks, and targeting property and wealth.
For many people, the result may feel like a stealth tax increase — especially over time, as inflation and wage rises push more income into taxed bands. For others — like property owners or investors — the burden could be more direct.
From the government’s perspective, this approach balances the need to fund public services, reduce the deficit, and avoid politically damaging “hard” tax rises. But whether this strikes the right balance — or erodes trust with voters — remains to be seen.