Chancellor Reeves Abandons Income Tax Rise Plans Ahead of November Budget, Prompting Market Jitters
Chancellor Rachel Reeves has abandoned plans to raise income tax in the upcoming 26 November Budget, triggering concerns in financial markets. The pound fell to around $1.315, while yields on UK government bonds rose, with the 10-year gilt yield climbing about 7 basis points to 4.50% and the 20-year gilt yield reaching 5.233%, its highest since mid-October.
The FTSE 100 index slid approximately 1.6% to around 9,647 amid budget-related jitters and worries over artificial intelligence valuation, impacting investor sentiment.
The decision to drop planned income tax rises is viewed by some as damaging to the government's fiscal credibility and may increase the chances of a Labour leadership change or a shift toward more left-leaning economic policies.
Financial analysis by Berenberg estimates that the government will need about £30 billion (roughly 1% of GDP) in the upcoming budget. While a 1 percentage point increase in income tax could raise approximately £10.5 billion, and a 2 percentage point increase over £20 billion, even cutting tax thresholds down to £46,000 would still leave a funding shortfall, potentially requiring additional measures.
The New Economics Foundation has argued that future tax increases are likely but should be progressive and targeted. It warns against simply cutting thresholds and recommends equalising capital gains tax (CGT) rates and improving coordination between the Bank of England and the Office for Budget Responsibility.
Separately, the RedBird Capital consortium has withdrawn its £500 million bid for the Telegraph amid ongoing regulatory scrutiny and uncertainty in the media sector.
