RACHEL Reeves has told the budget watchdog she plans to increase income tax, making way for a cut in National Insurance, reports say.
The Chancellor has told the Office for Budget Responsibility (OBR) that an increase in personal taxation is one of the “major measures” she is gearing up to announce later this month.
She is also intending to announce plans to boost economic growth when she delivers her plan to the House of Commons, The Times reports.
The forecaster will analyse the impact of her plans before informing the Treasury of its findings on Monday.
Ms Reeves to due to deliver her Budget plans to the House on November 26.
Her proposals are not set in stone and she could still back away from any possible tax rise.
If income tax is increased though it will break Labour’s manifesto pledge not to increase income tax rates.
The party went into the last election pledging not to hike income tax, national insurance or VAT ahead of their thumping election win.
She is also expected to freeze income tax thresholds until the end of the decade which brings more people into paying higher rates.
The Chancellor is trying to fill a big hole in the public finances which could be as large as £30billion, following a downgrade in productivity forecasts by the OBR.
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Under the plans she is considering, income tax would rise by 2p while national insurance would be cut by the same amount.
This would be an attempt to shift the burden of tax rises away from workers and on to other groups, such as pensioners and landlords.
The move could raise more than £6billion a year, according to economists.
The Treasury have been approached for comment.
Ms Reeves is considering limiting the national insurance cut to earnings below £50,270, cutting the rate from 8 per cent to 6 per cent, the paper says.
Anyone earning more than £50,270 would still be subject to a 2 per cent rate.
Should she raise the basic rate of income tax, she would be the chancellor in 50 years to do so.
In a speech on Monday, Ms Reeves said she would put “national interest” before “political expediency,” signalling she would break her party’s pledge not to increase income tax, national insurance or VAT.
She added “we will all have to contribute” and “ do our bit”.
Ms Reeves is also planning to extend the freeze in income tax thresholds for another year.
The move, which has been described as a “stealth tax,” means people are dragged into paying a higher rate of tax as their income increases, although the thresholds remain the same.
Meanwhile, the Bank of England has warned about rising taxes in the Budget were hitting economic growth.
The BofE’s monetary policy committee (MPC) said on Thursday that consumer spending and business investment had dropped in recent weeks as speculation as to what was in the Budget increased.
It added that levels of uncertainty in businesses was now “very high,” worse than when Liz Truss delivered her “mini budget”.
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The Bank said: “Contacts report that weak demand and elevated uncertainty ahead of the autumn budget may be causing firms to delay investment.
“The proportion of [businesses saying] that the overall level of uncertainty is high or very high has been around its highest level since end-2022.”
