"Nightmare" for Labour as it considers breaking manifesto pledge with income tax rise to plug £30bn hole

Labour is considering breaking its manifesto pledge and raising income tax to help plug a £30bn hole in the public finances with experts denouncing it as a “political nightmare”.

The party is considering a 1p rise to the basic rate at next month's Budget, which would raise around £8bn, according to The Guardian.

Raising income tax may be the only way to make sure Chancellor Rachel Reeves raises enough money to help plug the gap, advisers in the Treasury and No 10 believe.

Laura Purkess, personal finance expert at Investing Insiders, said: "The fact Labour is seriously considering an income tax rise shows how dire the numbers must really be.

"It's a political nightmare for the party and would be a constant point-scorer for the opposition and Reform, which will relish in them U-turning on another manifesto pledge.

"Labour are probably kicking themselves for ever promising not to raise income tax, given a 1p rise would reportedly raise around £8bn immediately. That's nothing to sniff at when the finances are in such a poor state.

"If the party raised higher rates of tax, it would be less damaging politically, but would raise a lot less money.

"For regular people, a tax rise on their earnings wouldn't just be a political disappointment - it will just put further pressure on household finances that are already seriously squeezed from all angles.

"Many families don't have anything extra to spare, and will have to make more cuts to their living standards to accommodate this. 

""That can cause people to neglect other important financial decisions, such as creating or updating a will, setting up a retirement plan, or putting protection policies in place for ill health or loss of their income.

"Taking more money from people's purses right now will also reduce spending and damage their confidence to invest - something Labour has been increasingly pushing for - which would have a knock on the wider economy.

“Unfortunately, it looks like Labour is in a real pickle, so if they do decide to stick to their manifesto pledge, we can probably expect a number of other levers being pulled to make up for it.”

Michelle Lawson, Director at Fareham-based Lawson Financial, hit out at Labour.

She added: "This is all quite ironic – you see the government spending millions and billions and the 'black hole' appears to have magically grown from £22bn to £30bn. Something really isn't adding up – someone needs a new calculator. UK plc is becoming more of a basket case as each day passes scrabbling around for pennies hidden in coat pockets and behind the sofa. 

"Households are getting more and more pressed and can only give so much. Labour promised the world and have lied through their teeth. They had a golden opportunity gifted to them and they have ripped it up and laughed in public faces. 

“If nothing else, politics needs to change to make political parties accountable for their promises without them being able to backtrack otherwise they have fraudulently obtained their vote and trust. Unless Starmer and Reeves really are stupid, they can no longer ignore public sentiment as proven in the by-elections.”

Patricia McGirr, Founder at Burnley-based Repossession Rescue Network, said Labour is scoring a “political own goal”.

She continued: "Every prime minister who’s sworn ‘no new taxes’ ends up eating their words, and Labour is next in line. In this case, it's Hobson's choice. If this is the grand plan to patch a £30bn black hole, it’s a political own goal that might well put the boot into what's left of our failing economy. 

"Taxing working people when the country’s already running on fumes will erode spending power and the confidence to invest. Hitting pay packets again isn’t fiscal responsibility, it's a raid on empty pockets. 

"We need major reform of public spending and politicians willing to tackle systemic inefficiencies. For the next Budget, the question isn’t whether taxes rise, it’s who’s left to pay them."

Though Daniel Wiltshire, Actuary & IFA at Bradford-on-Avon-based Wiltshire Wealth, said Labour have no choice but to take action.

He added: "This is looking like the least worst option for Labour. A reminder of the political adage 'in opposition, you can say what you like; in government, you must do what you can'."

Scott Gallacher, Director at Leicester-based Rowley Turton, agreed that Labour had tough decisions to make.

He continued: “Unfortunately, the Chancellor is caught between a rock and a hard place. The Government’s finances are in an awful state – and arguably getting worse – meaning tough choices are unavoidable. Borrowing more is dangerous and risks backfiring if gilt yields rise. 

"Spending cuts would be difficult for Labour backbenchers to swallow, so they’re probably off the table. Meddling with most other taxes is akin to rummaging down the back of the sofa for loose change. That only really leaves a huge boost to growth, perhaps through a major trade deal – something we’ve been unable to secure with the United States – or rejoining the Customs Union or Single Market, which Rachel Reeves has already started hinting at. 

"The fact that reversing Brexit is even being discussed shows just how bad things must be at the Treasury. And if that’s not politically achievable, the only option left may be breaking manifesto commitments and raising taxes such as Income Tax.”