Rachel Reeves needs to “make the case” to voters that extending the freeze on personal income thresholds was the “fairest” way to increase taxes, Baroness Harriet Harman has said.

Speaking to Sky News political editor Beth Rigby on the Electoral Dysfunction podcast, the Labour peer said the chancellor needed to explain that her decision would “protect people’s cost of living if they’re on low incomes”.

In her budget on Wednesday, Ms Reeves extended the freeze on income tax thresholds – introduced by the Conservatives in 2021 and due to expire in 2028 – by three years.

The move – described by critics as a “stealth tax” – is estimated to raise £8bn for the exchequer in 2029-2030 by dragging some 1.7 million people into a higher tax band as their pay goes up.

The chancellor previously said she would not freeze thresholds as it would “hurt working people” – prompting accusations she has broken the trust of voters.

During the general election campaign, Labour promised not to increase VAT, national insurance or income tax rates.

Sir Keir Starmer has insisted there’s been no manifesto breach, but acknowledged people were being asked to “contribute” to protect public services.

He has also launched a staunch defence of the government’s decision to scrap the two-child benefit cap, with its estimated cost of around £3bn by the end of this parliament.

‘A moral failure’

The prime minister condemned the Conservative policy as a “failed social experiment” and said those who defend it stand for “a moral failure and an economic disaster”.

“The record highs of child poverty in this country aren’t just numbers on a spreadsheet – they mean millions of children are going to bed hungry, falling behind at school, and growing up believing that a better future is out of reach despite their parents doing everything right,” he said.

The two-child limit restricts child tax credit and universal credit to the first two children in most households.

The government believes lifting the limit will pull 450,000 children out of poverty, which it argues will ultimately help reduce costs by preventing knock-on issues like dependency on welfare – and help people find jobs.

Speaking to Rigby, Baroness Harman said Ms Reeves now needed to convince “the woman on the doorstep” of why she’s raised taxes in the way that she has.

“I think Rachel really answered it very, very clearly when she said, ‘well, actually, we haven’t broken the manifesto because the manifesto was about rates’.

“And you remember there was a big kerfuffle before the budget about whether they would increase the rate of income tax or the rate of national insurance, and they backed off that because that would have been a breach of the manifesto.

“But she has had to increase the tax take, and she’s done it by increasing by freezing the thresholds, which she says she didn’t want to do. But she’s tried to do it with the fairest possible way, with counterbalancing support for people on low incomes.”

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She added: “And that is the argument that’s now got to be had with the public. The Labour members of parliament are happy about it. The markets essentially are happy about it. But she needs to make the case, and everybody in the government is going to need to make the case about it.

“This was a difficult thing to do, but it’s been done in the fairest possible way, and it’s for the good, because it will protect people’s cost of living if they’re on low incomes.”

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With all the speculation, it was always going to be a big one, but Rachel Reeves’s second budget turned into a political earthquake before she even stood up at the despatch box.

In this bumper budget special, Beth, Ruth, and Harriet unpick what happened on one of the most dramatic days in the fiscal calendar.

With the unprecedented leak of the Office for Budget Responsibility’s assessment giving the opposition a sneak preview, Kemi Badenoch delivered a fiery attack. Listeners weigh in on their thoughts of her comebacks.

Send us your messages and Christmas-themed questions on WhatsApp at 07934 200 444 or email electoraldysfunction@sky.uk.

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The South African Reserve Bank says it doesn’t see a need for a central bank digital currency in the near term, instead saying the country should modernize its payments system.

The South African central bank said in a paper released on Thursday that there was no “strong immediate need” for a retail CBDC, though deploying one was technically feasible.

It said that existing initiatives, such as a program to modernize the payments system and expand non-bank participation in the national payment system, should remain the priority for now.

“While the SARB does not currently advocate for the implementation of a retail CBDC, it will continue to monitor developments and will remain prepared to act should the need arise.”

The central bank will shift its focus toward exploring wholesale CBDC applications and cross-border payment efficiency, while continuing to monitor retail CBDC developments, it stated. 

Central bank issues crypto and stablecoin warning

The research examined whether a retail CBDC would address gaps in South Africa’s payment system, revealing that challenges persist as roughly 16% of adults remain unbanked. 

For a CBDC to succeed, it would need to match or exceed the benefits of cash, including offline functionality, universal acceptance, low costs, ease of use, and privacy features, it stated. 

Related: South Africa’s central bank flags crypto, stablecoins as financial risk

South Africa has turned against crypto recently, with a warning from its central bank about crypto and stablecoins. 

In a report released earlier this week, the SARB flagged “crypto assets and stablecoins” as a new risk for technology-enabled financial innovation. 

The bank also cautioned that crypto can be used to circumvent Exchange Control Regulations, which control the inflows and outflows of funds to South Africa.

CBDC race continues across the globe

Only three countries have officially launched a CBDC: Nigeria, Jamaica and The Bahamas, according to the Atlantic Council CBDC Tracker. 

There are 49 countries that have CBDCs in a pilot testing phase, 20 countries actively developing one, and 36 countries are researching a CBDC. Meanwhile, the United States shelved its CBDC plans under the Trump administration.

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