Labour risks breaking tax pledge as Rachel Reeves targets higher earners in autumn Budget

Chancellor Rachel Reeves has indicated that her Budget due on November 26 will ask more Britons to shoulder the burden of fixing the country’s public finances – even if it means breaching Labour’s pledge not to increase income tax.

In a speech this week, Reeves warned that “difficult choices” could not be avoided if Britain was to protect the NHS, reduce the national debt and keep inflation under control. Its language was a shift from previous assertions that only those with “broad shoulders” would face higher taxes.

“If we want to build Britain’s future together, we all have to contribute,” she said. “When difficult choices are required, we will act guided by the interests of the working class.”

While the Chancellor stressed that Justice would support her fiscal plans, her comments were widely interpreted in Westminster as preparing voters for a wider tax rise that could affect millions of middle-income workers.

At the heart of the political tension is the question of how Labor defines “working people” – a term that may exclude many in the upper middle income bracket. Treasury insiders point out that the government considers those earning up to £45,000 to £46,000 a year to be “working people”.

This would leave nearly a third of UK earners outside the protected group, potentially exposing professionals such as paramedics, teachers, software developers and vets to higher income tax or National Insurance contributions.

Data from the Office for National Statistics (ONS) shows that around 40% of male employees and 20% of female employees earn more than £45,000. In London, where the average full-time salary is nearly £50,000, the ratio is much higher – meaning the capital’s workforce could face the most severe hit.

Ironically, the public sector pay awards that Labor is fighting against could see the Chancellor giving with one hand and taking with the other. NHS pay scales show that senior paramedics, speech and language therapists and school nurses now earn above the proposed threshold.

Likewise, the National Education Union estimates that almost all school leaders and senior teachers fall into the category likely to face higher taxes. Years of freezing income tax thresholds — known as fiscal drag — have already pushed many of these workers into higher ranges.

Britain’s finances have become increasingly dependent on a small group of first-rate taxpayers. According to HMRC projections, 1.2 million people earning more than £125,140 – just 3% of all income tax payers – contribute around 40% of total income tax revenue.

Income tax now raises more than £300 billion a year, making it the government’s largest source of revenue. However, as tax policy experts point out, the average worker in Britain still pays less in income tax than their counterparts in most major European economies.

“The UK system has become very overburdened,” said Chris Sanger, head of tax policy at EY. “If you raise rates on higher earners, you risk losing mobility and, ultimately, revenue. In a post-pandemic world where remote work has become commonplace, the wealthy can move more easily than ever before.”

The political risk for Labour is that higher taxes on higher earners could alienate middle-class voters who helped deliver its election victory in 2024. The YouGov poll shows that households earning more than £50,000 were disproportionately likely to vote Labour, while support for reform was strongest among lower income groups and Conservative voters leaned towards the elderly and pensioners.

If Reeves goes ahead, she faces a delicate balance: funding the public services that Labor has promised to revive, while avoiding a backlash from the professionals and business people who support Britain’s tax base.

As one City economist put it: “Reeves is walking a fiscal tightrope – between justice and the risk of flight. The more taxes are imposed on those who can afford to move, the fewer will be left to pay.”