Labour's tax pledges

What pledges did Labour make in its 2024 manifesto?

In its manifesto for the July 2024 election, Labour said: “The Conservatives have raised the tax burden to a 70-year high. We will ensure taxes on working people are kept as low as possible. Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.” ³¹ UK Labour Party, Change: Labour Party Manifesto 2024, 2024  

They also made commitments on corporation tax (the tax on company profits): “Labour will cap corporation tax at the current level of 25%, the lowest in the G7, for the entire parliament, and we will act if tax changes in other countries pose a risk to UK competitiveness. We will retain a permanent full expensing system for capital investment and the annual investment allowance for small business.” They promised to produce a road map for business taxation, and this was published alongside the 2024 budget. ³² HM Treasury, Corporate Tax Roadmap, The Stationery Office, October 2024.  

In the general election campaign, Labour argued that all the specific spending increases they planned could be paid for by specific tax changes they identified, such as abolishing “non-dom” status and imposing VAT on private school fees. 

Did Labour keep to its tax promises in budget 2024?

In October 2024, the chancellor raised very significant sums to pay for increased public spending and to meet her fiscal rules, to ensure that borrowing was not needed to cover day-to-day spending and that national debt (as measured by public sector net financial liabilities) should be falling as a percent of GDP by 2029/30. To avoid breaking the letter of the manifesto pledges, she chose to do this by increasing the rate of employer Class 1 national insurance contributions from 13.8% to 15% and cutting the threshold above which NICs becomes payable. Those changes, combined with an increase in the employment allowance to benefit small employers, were forecast to raise £23.8 billion in fiscal year 2025/26, rising to £25.7bn in 2029/30. ³³ HMRC, Changes to the Class 1 National Insurance Contributions Secondary Threshold, the Secondary Class 1 National Insurance contributions rate, and the Employment Allowance from 6 April 2025, The Stationery Office, 2024.

After that budget, Rachel Reeves told the CBI in November 2024 that she would not be "coming back with more borrowing or more taxes". ³⁴ BBC News, Reeves tells firms no more tax rises as she defends Budget, 25 November 2024, www.bbc.co.uk/news/articles/c33ek51rx57o

Arguably that change already broke the spirit of the pledges. As the Office for Budget Responsibility (OBR) pointed out, it was likely that many employers would seek to restrain wage increases to offset the increase in NICs contributions, although this would not be possible for workers earning the minimum wage. There has also been evidence of quite significant labour market impacts as a result of the employer NIC change combined with the increase in the National Living Wage announced by Reeves last year. A CIPD survey connected these changes to businesses’ intentions to reduce headcount, ³⁵ CIPD, ‘Looming National Insurance changes prompt widespread plans to cut hiring and increase redundancies, new CIPD research finds’, CIPD, 17 February 2025, retrieved 12 November 2025, www.cipd.org/uk/about/press-releases/winter-labour-market-outlook-2025  and there was a fall of 180,000 employees on payrolls in the year to October 2025. ³⁶ ONS, ‘Earnings and employment from Pay As You Earn Real Time Information, UK: November 2025’, ONS, 11 November 2025, retrieved 12 November 2025, www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/bulletins/earningsandemploymentfrompayasyouearnrealtimeinformationuk/no…  

Why might the chancellor need to raise more money now?

Although Reeves made much of her “iron clad fiscal rules” in the 2024 budget, she gave herself minimal headroom against changes in the forecast – only £9.9 billion compared to an average of £31.3bn under earlier chancellors since 2010. ⁴⁰ Office for Budget Responsibility, Economic and fiscal outlook, March 2025, CP 1289, 2025, p15.  That left her vulnerable to any downside shocks or revisions – and since October 2024 there have been several of them: 

• Backbench opposition to making savings from the winter fuel allowance and cuts to disability benefits, leading to the reversal of these policies.
• The OBR “supply side review” which is expected to downgrade productivity estimates.
• A more uncertain global picture as a result of Trump tariffs.

These have led to estimates that Reeves needs to find at least £14bn to restore her £9.9bn headroom. ⁴¹ Resolution Foundation, Black holes and consolidations, Previewing the key decisions for Budget 2025, www.resolutionfoundation.org/app/uploads/2025/11/Black-holes-and-consolidations.pdf  Many have called on Reeves to raise significantly more to ensure that she has more headroom against her rules to avoid being left vulnerable to future variation – and Treasury sources have indicated she is minded to increase her previous headroom. ⁴² Pickard J, ‘Reeves looks at bigger tax rises and spending cuts to build up UK fiscal buffer’, Financial Times, 12 November 2025, www.ft.com/content/c0fc5f79-9cf7-4999-91de-b303ef07cf4c  Doing so would mean tax increases in the tens of billions.

What options does Reeves have for raising taxes in the budget?

It is possible the chancellor could scrabble together enough from changes to minor taxes if she simply sought to restore her lost headroom. But many commentators think she would be better advised to look again at one of the four major revenue raisers even if it means breaking a manifesto pledge.

Income tax ⁴⁶ HM Government, ‘Income Tax rates and Personal Allowances’, HM Government, (no date) retrieved 11 November 2025, www.gov.uk/income-tax-rates  

Forecast receipts: £330.7bn in 2025/26

The UK government sets income tax rates and thresholds for England and Northern Ireland. Both Scotland and Wales can vary income tax rates and thresholds, apart from the personal allowance (but Wales has not used its tax varying powers yet). In England, Wales and NI there are three rates of income tax applied above the personal allowance, which is calculated on an annual basis:

Scotland has six rates of income tax, from 19% for incomes just above the personal allowance to 48% on the highest incomes. 

On incomes over £100,000 the personal allowance starts to be withdrawn, until it disappears completely at incomes over £125,140. Child benefit is withdrawn if either parent earns over £60,000. If either parent earns over £100,000, they lose entitlement to free childcare. 

Options, with revenue effects in 2028/29, include: ⁴⁷ All calculations taken from HMRC, ‘Direct effects of illustrative tax changes bulletin (June 2025)’, HMRC, 24 June 2025, retrieved 11 November 2025, www.gov.uk/government/statistics/direct-effects-of-illustrative-tax-changes/direct-effects-of-illustrative-tax-changes-bulletin-january-2025#income-t…  

• Raising basic rate of income tax by 1p: £8.2bn
• Raising higher rate of income tax by 1p: £2.1bn
• Raising additional rate by 1p: £230m 

National insurance contributions (NICs)

Forecast receipts 2025/26: employee and self-employed NICs – £49bn; employer NICs – £145.8bn

Employee and self-employed NICs are taxes on weekly earned income (unlike income tax which applies to all forms of income – including savings, dividend income, rents and pensions). Employee NICs are paid at 8% between the “primary threshold” (which is the same as the income tax personal allowance, though applied weekly) and the upper earnings limit (the same as the income tax higher rate threshold, again applied weekly) and then there is an additional 2 per cent rate above the UEL. Employers also pay NICs which operates like a tax on payrolls. NICs are levied on a UK-wide basis. The self-employed pay a lower rate of NICs than employees. 

Options include:

Since employer NICs were increased substantially in budget 2024, the chancellor is unlikely to go there again, so the changes she might look at are on employee and self-employed NICs.

• 1p change in employee (Class 1) and self-employed (Class 4) NIC rates – £ 5.4bn in 2028/29 and £ 445m respectively
• 1p change in additional employee (Class 1) and self-employed (Class 4) NIC rates – £2.05 bn and £ 320m respectively.

VAT

Forecast receipts 2025/26 (net of refunds): £148.8 bn

There are three rates of VAT payable:

• Zero rate – 0% on a wide range of “basics” – e.g. food, books and newspapers, passenger transport and children’s clothes and shoes
• Reduced rate – 5% on domestic fuel and power
• Standard rate – 20% on everything else (which covers around half of consumer spending)

Options: 

• Increase the standard rate of VAT by 1 percentage point – £9.55bn (in 2028/29)
• End all VAT zero rates and reduced rates – £67bn (in 2024/25) ⁴⁸ HMRC, ‘Non-structural tax relief statistics (December 2024)’, HMRC, updated 5 December 2024, retrieved 11 November 2025, www.gov.uk/government/statistics/main-tax-expenditures-and-structural-reliefs/non-structural-tax-relief-statistics-december-2024  

Corporation tax

Forecast receipts 2025/26 – £95.8bn

Corporation tax is charged on company profits after allowable expenses – but is ultimately paid by shareholders (through lower share prices or dividends), customers (through higher prices) or employees (through lower wages). Corporation tax was cut and then raised again under the Conservatives but reformed by Jeremy Hunt to allow full expensing of most capital costs. 

Options:

• 1 percentage point rise in main CT rate – £4bn (in 2028/29)

Would these hit “working people”? 

Yes. It would be very difficult to square rises in any of these taxes with the commitment to protect “working people”. However, there have been reports that the prime minister and chancellor are focussing specifically on protecting people whose income from work is less than £45,000 a year.

Could Rachel Reeves look to smaller taxes?

It is much easier (and certain) to raise substantial sums using the main taxes. But it is still possible that Rachel Reeves devises a package of tax changes that leave the letter of her pledges unscathed. Ideas that have been talked about are:

• changes to the tax treatment of pensions and savings – for example, to limit individuals’ and their employers’ ability to avoid NICs by paying money into pensions
• changes to council tax – to tax higher valued properties more heavily
• a new charge on the drivers of electric vehicles
• increases in gambling taxes
• reforms to capital gains tax, including a possible exit tax
• some Labour MPs have been advocating a wealth tax.