Rachel Reeves Abandons Income Tax Hike Amid Labour Pledge Pressure

Chancellor Rachel Reeves has abandoned plans to raise income tax rates by 2p, a move that would have breached the Labour Party's manifesto pledge. The decision comes after weeks of speculation and heavy hints that she would indeed implement the tax rise in the Budget. According to sources, the plan, dubbed the "2 up, 2 down" proposal, was sent to the Office for Budget Responsibility (OBR) earlier this month for costing, as part of efforts to fill a £30 billion gap in the public finances. The OBR's revised assessments, however, have increased the projected strength of wages and tax receipts, reducing the gap to around £20 billion. The decision has been met with a muted response from the markets, with the pound trading at 1.32 against the US dollar at the time of writing. The FTSE 100 index also remained steady, with a 0.2% increase. Labour Party insiders have welcomed the move, citing the need to avoid breaking manifesto commitments. The "2 up, 2 down" plan, pioneered by the Resolution Foundation think tank, would have raised several billion pounds from non-wage income, such as landlords and savings. The proposal was seen as a way to compensate workers with a 2p National Insurance cut, offsetting the impact of the income tax rise. The Labour Party's decision to abandon the plan is a significant shift in policy, particularly given the party's commitment to increasing public spending. The move is also seen as a response to the changing economic landscape, with revised OBR assessments suggesting a stronger-than-expected recovery. As a result of the decision, the Labour Party will now need to explore alternative options to fill the £20 billion gap in the public finances. This may involve a combination of spending cuts and tax rises, although the exact details remain unclear at this stage.