Rachel Reeves rebukes budget leak, scraps income tax hike plan

CHANCELLOR Rachel Reeves said on Wednesday (19) that leaks about the budget were "not acceptable" after a report last week that she had abandoned plans to raise income tax sent bond prices tumbling.

Reeves is expected to need to raise tens of billions of pounds to stay on track to meet her fiscal targets in the annual budget, and financial markets had seen a rise in income tax as the surest way to achieve this.

"Leaks are not acceptable ... The priorities of that budget will be to tackle the cost of living, to get NHS (National Health Service) waiting lists down and to reduce the national debt," she told broadcasters when asked about the income tax decision, which was confirmed by a government source.

Reeves had appeared to pave the way for an income tax hike, which would have been a breach of the Labour Party's 2024 election promises, when she gave a rare pre-budget speech earlier this month, saying "each of us must do our bit".

The change of course spooked investor confidence, with investors and businesses complaining that the confusing messages about the budget were undermining the government's credibility.

According to reports, Reeves is preparing a budget that aims to reassure Britain’s small business sector. In the run-up to her fiscal statement, the chancellor has faced calls from the Federation of Small Businesses (FSB) to offer targeted protections for smaller firms and the self-employed, who have long complained of being overlooked by Whitehall.

One measure likely to remain in place is the extended employment allowance, worth up to £10,500, which has previously shielded more than a million employers from higher national insurance contributions.

The FSB is pushing for the allowance to be increased in line with the new national living wage, which is expected to rise from £12.21 to about £12.70 per hour in the budget.

However, some small business owners warn that the combined effect of increased wage bills and employer national insurance could further threaten jobs, unless counterbalanced by meaningful reliefs.

The chancellor is also under pressure to expand small business rates relief and raise the VAT registration threshold to £100,000, moves that would benefit hard-pressed owners coping with inflation and higher interest rates.

(with inputs from Reuters)