Reeves Signals Income Tax Rise in November Budget As Britons Face Stagnant Wages and Frozen Interest Rates
LONDON The UK’s economic squeeze shows no sign of easing. As households grapple with stagnant wages, high prices and unrelenting mortgage costs, Chancellor Rachel Reeves is now weighing a rise in income tax to stabilise government finances, a move that could leave many Britons feeling even more pressure.
According to reports confirmed by Reuters, Reeves is considering a two-pence rise in income tax alongside a two-pence cut in employee National Insurance (NI) for earnings under £50,270. The shift would effectively raise revenue by more than £6 billion while maintaining the government’s claim of “fairness” between earners. The final decision is expected in the Budget on 26 November.
A ‘high-tax era’ under new management
Since taking office, Reeves has warned repeatedly that Labour inherited “the worst fiscal position in a generation.” Her strategy, she says, is to restore market confidence through restraint even if it means difficult trade-offs. Analysts describe the proposed NI-tax swap as an accounting move designed to signal discipline to markets without breaching manifesto pledges to “protect working people.”
However, critics argue it still amounts to a net tax rise on income, especially for those whose pay has failed to keep pace with inflation. Any relief from lower NI deductions would be offset by higher income tax, leaving most workers no better off in real terms.
Personal finances under strain
The policy debate comes as families face one of the tightest financial squeezes in over a decade. The Bank of England this week opted to hold the base rate at 5.25 per cent, resisting calls for a cut despite signs of a slowing economy. Inflation remains above the 2 per cent target driven by energy, housing and food costs, keeping mortgages and borrowing expensive through winter. (The Guardian)
For mortgage holders on variable or tracker rates, the decision means another month of high repayments. Renters are also under pressure, as landlords continue passing higher costs onto tenants. Meanwhile, energy bills are expected to rise again in January as the cap adjusts to global prices.
At the same time, wage growth has slowed sharply, falling below inflation in the latest ONS data. Real household disposable income is still below pre-pandemic levels, leaving little buffer for tax increases of any kind. Consumer debt and credit card reliance are both climbing.
Impact by income group
- Lower earners: The NI cut could reduce deductions slightly, but stagnant wages and higher prices mean no real gain in disposable income.
- Middle earners: Expected to be most affected by the income tax rise, especially those repaying mortgages or managing rising childcare costs.
- High earners: Likely to shoulder the largest nominal tax increase; however, asset owners benefit from rising gilt yields and savings rates.
Business and market reaction
Business groups have already voiced concern. The Tesco chief executive said this week that “enough is enough,” warning that further tax rises could push up food prices and weaken consumer spending. (The Times) Retail and hospitality sectors remain cautious, saying tax uncertainty could stall recovery just as energy and supply costs begin to stabilise.
Markets, however, have reacted positively to signs of fiscal restraint. The pound stabilised slightly on Friday after early-week losses, while gilt yields firmed, suggesting investors expect a tighter but steadier Budget approach.
Looking ahead
With just over two weeks until Budget Day, pressure is mounting for Reeves to deliver a plan that balances growth with credibility. The challenge is clear: families are exhausted by years of inflation, energy shocks and tax creep. A fiscal tightening now risks deepening the cost-of-living fatigue that has already defined post-pandemic Britain.
But with debt levels high and borrowing costs stubborn, Reeves may have little choice. The question facing voters and economists alike is whether the government’s search for stability will come at the cost of personal solvency.
This article is provided by Fidelis News. Free to read, not free to make. Support our independent journalism via Buy Me a Coffee.
Sources: Reuters, The Guardian, The Times, Sky News.
Date: 8 November 2025 | By: Fidelis News Staff
