UK Chancellor of the Exchequer Rachel Reeves has shelved plans to raise income taxes following an improved fiscal outlook from the Office for Budget Responsibility (OBR), according to sources familiar with the matter.
The OBR’s updated forecast shows a significantly smaller fiscal gap than previously expected. A shortfall once projected at £35 billion ($46 billion) is now estimated closer to £20 billion, thanks to stronger government receipts and higher wage growth.
Reeves, who had been prepared to consider breaking Labour’s promise not to raise income tax, now has sufficient fiscal headroom of £15–20 billion under her rules, eliminating the need for additional tax hikes.
Sources indicate that instead, the upcoming budget may focus on lowering income-tax thresholds and adjusting taxes on salary sacrifice programs, while partially offsetting productivity downgrades noted by the OBR.
The improved forecast provides a boost to the government’s fiscal strategy, allowing Reeves to avoid measures that could have hit households while maintaining compliance with Labour’s manifesto commitments.
