Introduction
Keir Starmer and Chancellor Rachel Reeves are facing renewed criticism as they prepare for what opponents describe as another “tax raid” in next week’s Budget. Concerns have intensified following reports that Labour may freeze or even lower income tax thresholds, a move that could push millions more workers into higher tax bands.
The strategy comes despite Labour’s pre-election pledge not to raise taxes on “working people”, a commitment critics say has already been undermined by last year’s Jobs Tax.
Opposition figures argue the Government’s current direction signals a shift toward relying on stealth tax rises rather than structural reforms to public spending.
Threshold Freeze Could Hit Millions
Freezing income tax thresholds means that pay rises even those only matching inflation drag workers into higher tax brackets. Economists warn that this form of “fiscal drag” is one of the most significant stealth tax mechanisms available to the Treasury.
Rachel Reeves previously acknowledged that threshold freezes “hurt working people”, yet Labour sources indicate the policy is firmly under consideration as ministers seek billions in revenue.
Should the freeze be implemented, middle-income earners are expected to be among the hardest hit, particularly those already squeezed by rising living costs and falling disposable income.
Welfare Spending Clash Behind Tax Plans
According to political insiders, Labour’s latest tax proposals stem from internal disputes over welfare spending. Reeves had attempted to trim £5 billion from the welfare budget, which critics argue has ballooned in recent years.
However, these plans were reportedly blocked by Labour MPs who opposed cuts, forcing the Treasury to seek alternative ways to plug gaps in public finances.
The setback has intensified pressure on Reeves, who must now balance demands for fiscal discipline with a parliamentary party resistant to welfare reform.
Two-Child Benefit Cap Set for Reversal
The Government has also faced growing pressure from within its own ranks to scrap the two-child benefit cap a policy originally introduced to ensure fairness between working families and those on benefits.
Keir Starmer is now expected to lift the cap, a move that would significantly increase welfare spending at a time when the Treasury is already struggling to contain costs.
Critics say reversing the cap will deepen Labour’s reliance on tax rises to fund higher benefits, making further increases almost inevitable.
Conservatives Warn of “Out-of-Control Spending”
Conservative figures argue that Labour’s tax rises are not the product of external pressures, but of what they describe as the Government’s unwillingness to make difficult spending cuts.
Former business secretary Kemi Badenoch accused Starmer and Reeves of “lacking the backbone” to rein in the state and warned that taxpayers would be forced to foot the bill for Labour’s internal divisions.
The Tories claim their alternative would focus on cutting spending, reducing taxes, boosting business confidence and pushing more people into work to strengthen the economy.
Political Stakes High Before Budget Day
With the Budget only days away, Labour is attempting to defend its economic credibility while preparing measures likely to anger parts of its voter base.
Analysts say the Government faces a dilemma: raise taxes and risk public backlash, or cut spending and risk conflict within its own party.
Either way, the choices made next week are set to define Labour’s economic trajectory and shape political debate for months to come.
