Last year, the UK’s left-leaning government swept into power with a promise of no new taxes on workers. However, recent statements from officials indicate that tax increases remain a possibility, citing changing global conditions. They assert that their commitment holds until a final decision is made.
In a speech during the Labour Party Conference, Prime Minister Rachel Reeves, who has been in politics for a long time, suggested that the initial promise regarding tax raises may not hold. She emphasized the party’s commitment in their manifesto that taxes for workers would not go up, specifically mentioning national insurance, income tax, or VAT. Yet, she acknowledged that they can only aim to keep taxes as low as possible. Reeves criticized the previous government for its economic handling, describing it as a mismanaged situation that now faces “severe global headwinds.” She added that making decisions on taxation and spending is increasingly challenging.
This trend of attributing challenges to external factors became evident before Reeves even took the stage. In an earlier interview with BBC Radio 4, she linked her fiscal strategies to influences such as conflicts involving President Donald Trump and Russian President Vladimir Putin.
During that broadcast, when pressed for a straightforward acknowledgment of whether tax increases were off the table, she avoided clear answers, stating: “Whether it’s a war in Europe and the Middle East, whether trade barriers will increase due to tariffs from the US, whether it’s a global borrowing cost, we are not immune to those things.” Even the BBC characterized her comments as justifying potential tax hikes.
Both Reeves and Prime Minister Kiel have utilized a strategy that involves sidestepping direct responses about their manifesto commitments. However, Prime Minister Darren Jones hinted at the reality behind the scenes, indicating that there’s no significant expectation that these pledges will remain intact for long. Reportedly, he stated: “The manifesto is standing today because no decisions have been taken yet. There is a forecast from the office for budget responsibility. I don’t know what to say yet.”
If tax hikes are to happen, they would be unveiled during Reeves’ budget announcement in November. Although not confirmed, some speculate the Prime Minister might adjust the UK sales tax, known as VAT. This change would contradict their “tax on workers” promise, potentially leading to other less obvious yet impactful measures like freezing tax thresholds, also known as “stealth taxes.”
Stealth taxes have historically allowed governments, particularly the former Conservative administration, to avoid backlash associated with visible tax hikes. Instead, these kinds of taxes rise automatically with inflation, without adjusting income tax bands to accommodate this growth. The current government has reportedly seen this practice escalate, particularly affecting middle and upper-income brackets, which were always intended for the very wealthy.
For instance, in 2003, a UK nurse paid taxes at the top band, but by a decade later, many thousands found themselves in the same situation. Despite not being wealthier than before, more professionals like nurses and teachers are now facing higher taxes.
Looking ahead to 2028, it’s projected that one-fifth of all taxpayers will be subject to a 40% higher tax rate—applying to groups that were not typically seen as affluent.
There’s ongoing speculation about whether Reeves will implement tax hikes this year. Notably, her commitment to not increasing taxes on workers appears to have already been compromised, especially since she raised taxes on employers shortly after the election.
