What has Labour pledged on income tax ahead of the Budget?

Amid reports that the government may be planning to extend the freeze on income tax thresholds in next week’s Budget, Conservative leader Kemi Badenoch has claimed that doing so would be a breach of Labour’s manifesto.

Mrs Badenoch repeatedly raised the issue at Prime Minister’s Questions on Wednesday, asking the PM Sir Keir Starmer to “confirm today that he will not break another promise by freezing income tax thresholds”.

It follows weeks of speculation about what income tax measures may be set out in the Budget. Last month it was widely reported that the chancellor Rachel Reeves was considering raising the headline rates of income tax, though government sources have since been reported as saying this is no longer on the cards.

While we don’t know for certain what income tax changes may be set out in next week’s Budget, we’ve taken a look here at what the government has pledged on income tax—and in particular whether extending the threshold freezes would constitute a breach of the party’s manifesto commitments.

What did Labour’s manifesto say about income tax?

Labour’s 2024 election manifesto said: “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.”

The wording of this pledge has been closely scrutinised and its meaning disputed, particularly with regards to the commitment on National Insurance. After the government increased employers’ National Insurance contributions in the 2024 Budget, many argued this breached the manifesto commitment, though Labour argued it did not, claiming its pledge to “not increase National Insurance” applied to “working people” but not employers.

The commitment on income tax has not yet been disputed in quite the same way, but the way it is worded is not entirely unambiguous. As our Government Tracker explains, the pledge clearly rules out increasing income tax “rates”, for “working people” at least, but does not explicitly refer to the thresholds at which income tax rates apply.

What has the government said about income tax rates?

The government typically does not confirm details of Budget measures ahead of time, but over the past few weeks various media reports suggested that the chancellor was considering increasing the headline rates of income tax. This would be a clear breach of Labour’s manifesto commitments—a point which the party itself seemed to accept.

In a “scene setter” speech on 4 November ahead of the Budget, Ms Reeves did not comment on specific policies, but also did not rule out tax rises.

And when asked about Labour’s manifesto commitments in an interview on BBC Radio 5 Live, she said: “It would, of course be possible to stick with the manifesto commitments, but that would require things like deep cuts in capital spending.”

However, last week it was reported that the government had reversed plans to increase income tax rates, after receiving forecasts from the Office for Budget Responsibility which suggested a smaller than expected gap between the government’s spending plans and forecast revenue.

What about threshold freezes?

It’s now being suggested that Ms Reeves will instead extend the freeze on income tax thresholds (though some reports have also suggested she might lower them instead, and others have questioned whether personal tax thresholds more generally might be affected).

Personal tax thresholds are the amount a person can earn before they start paying a certain rate of income tax or National Insurance contributions (NICs).

Most of these thresholds have been frozen since April 2022, under decisions taken by the previous Conservative government.

Freezing personal tax thresholds means that as wages increase over time, more people will begin paying tax, or paying tax at a higher rate, than otherwise would have done had thresholds continued to increase in line with inflation. This is known as fiscal drag.

Income tax and NICs threshold freezes are currently set to end in April 2028. However it’s been widely speculated that at least some of these threshold freezes, in particular those for income tax, will be extended for a further two years in the upcoming Budget.

As set out above, Labour’s manifesto refers to income tax “rates” and makes no specific mention of the thresholds.

But crucially Ms Reeves herself has appeared to link the manifesto commitment to the thresholds, in part of her 2024 Budget speech which has been widely quoted in recent days, including by Mrs Badenoch at PMQs and shadow chancellor Sir Mel Stride, who claimed in a pre-Budget press conference that the chancellor had said “in her own words, [extending the freeze of thresholds] will be a breach of the Labour Party manifesto.”.

In her 2024 Budget speech Ms Reeves said: “I have come to the conclusion that extending the threshold freeze would hurt working people. It would take more money out of their payslips.

“I am keeping every single promise on tax that I made in our manifesto, so there will be no extension of the freeze in income tax and national insurance thresholds beyond the decisions made by the previous Government.”

So while it’s not necessarily clear that extending threshold freezes would breach the letter of Labour’s manifesto commitments, Ms Reeves herself has appeared to suggest a link, and said that extended threshold freezes would “hurt working people” and “take more money out of their payslips”.

Several senior government ministers have previously said that the party’s commitment not to increase taxes on working people meant it would not increase the taxes in people’s payslips. The Treasury also referred to not increasing taxes in people’s payslips when we asked for its definition of “working people” in November 2024.

We asked the Labour party this week whether Ms Reeves’ comments in her 2024 Budget speech mean she believes that extending the freeze on income tax thresholds would breach Labour’s manifesto commitments on tax, and will update this article if we receive a response.

Meanwhile reports that thresholds might be lowered have since been downplayed (or even ruled out at least as far as higher-rate thresholds are concerned) by the Treasury. But were thresholds to be lowered Labour’s manifesto commitment could face even greater scrutiny, because while the headline rates of income tax might not change, a large number of individuals would start paying more income tax without their wages having increased.

A Treasury spokesperson said: “We do not comment on speculation around changes to tax outside of fiscal events. The Chancellor will deliver a Budget that takes the fair choices to build strong foundations to secure Britain's future.”