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The upcoming Budget has sparked considerable concern across financial markets and within political circles, largely due to Chancellor Rachel Reeves’s apparent retreat from plans to increase income tax. Reports indicate that UK borrowing costs surged sharply on Friday, prompting investor skepticism. Fund manager Mike Riddell described the situation in the Financial Times by saying the market had been “led up the garden path” following earlier indications from the chancellor about possible tax hikes. This reversal has unsettled investors who had been anticipating a firmer fiscal stance.
Inside government circles, tension is mounting as the response to the so-called “shock tax U-turn” unfolds. An anonymous source cited by The Independent spoke of “panic at No 10,” highlighting how the decision has rattled market confidence. The Prime Minister is reportedly working to “quell growing party rebellion” after discussions in Westminster hinted at a leadership challenge, showing signs of instability within the ruling party. Meanwhile, some media outlets have criticized the chancellor for losing control. The Daily Mail described the Budget as “shambolic” and labeled Reeves’s shift on income tax as “humiliating,” pointing to internal government sources who attributed the change to unexpectedly better public finance forecasts from the Office for Budget Responsibility.
Instead of raising income tax rates, the Treasury is now relying heavily on extending the freeze of income tax thresholds—a move referred to by The Times as a “stealth tax.” This extension, keeping the current thresholds in place until 2030, was originally introduced by the previous Conservative government. The resulting effect is that more people will be pushed into higher tax brackets as inflation erodes the real value of these thresholds. This policy change raises the possibility that some state pension recipients could become liable for income tax starting next year, a significant shift in fiscal policy.
The Guardian reports that the ongoing freeze in income tax thresholds is expected to generate an additional £7.5 billion from millions of workers due to inflation-driven bracket creep. Property tax changes also feature in the Budget discussions, with The Daily Telegraph suggesting that middle-class homeowners could face new charges. The chancellor is said to be considering a supplementary surcharge on certain high-value properties, adding to existing council tax liabilities. Meanwhile, the government blames internal party dissent for recent market jitters, as noted by The i Paper, attributing recent financial instability to rebellion from MPs who opposed previous welfare cuts. These developments highlight a politically fraught atmosphere surrounding the Budget and its economic implications
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