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Sir Keir Starmer and Rachel Reeves have scrapped plans to break their manifesto pledge and raise income tax rates in a massive U-turn less than two weeks from the budget.

The decision, first reported in the Financial Times, comes after a bruising few days which has brought about a change of heart in Downing Street.

Read more: How No 10 plunged itself into crisis

I understand Downing Street has backed down amid fears about the backlash from disgruntled MPs and voters.

The Treasury and Number 10 declined to comment.

The decision is a massive about-turn. In a news conference last week, the chancellor appeared to pave the way for manifesto-breaking tax rises in the budget on 26 November.

She spoke of difficult choices and insisted she could neither increase borrowing nor cut spending in order to stabilise the economy, telling the public “everyone has to play their part”.

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‘Aren’t you making a mockery of voters?’

The decision to backtrack was communicated to the Office for Budget Responsibility on Wednesday in a submission of “major measures”, according to the Financial Times.

The chancellor will now have to fill an estimated £30bn black hole with a series of narrower tax-raising measures and is also expected to freeze income tax thresholds for another two years beyond 2028, which should raise about £8bn.

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Conservative leader Kemi Badenoch said: “Only the Conservatives have fought Labour off their tax-raising plans.

“But one retreat doesn’t fix a budget built on broken promises. Reeves must guarantee no new taxes on work, businesses, homes, or pensions – and she should go further by abolishing stamp duty.”

How did we get here?

For weeks, the government has been working up options to break the manifesto pledge not to raise income tax, national insurance or VAT on working people.

I was told only this week the option being worked up was to do a combination of tax rises and action on the two-child benefit cap in order for the prime minister to be able to argue that in breaking his manifesto pledges, he is trying his hardest to protect the poorest in society and those “working people” he has spoken of so endlessly.

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Ed Conway on the chancellor’s options

But days ago, officials and ministers were working on a proposal to lift the basic rate of income tax – perhaps by 2p – and then simultaneously cut national insurance contributions for those on the basic rate of income tax (those who earn up to £50,000 a year).

That way the chancellor can raise several billion in tax from those with the “broadest shoulders” – higher-rate taxpayers and pensioners or landlords, while also trying to protect “working people” earning salaries under £50,000 a year.

The chancellor was also going to take action on the two-child benefit cap in response to growing demand from the party to take action on child poverty. It is unclear whether those plans will now be shelved given the U-turn on income tax.

Read more: What taxes could go up now?

The change of plan comes after the prime minister found himself engulfed in a leadership crisis after his allies warned rivals that he would fight any attempted post-budget coup.

It triggered a briefing war between Wes Streeting and anonymous Starmer allies attacking the health secretary as the chief traitor.

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Wes Streeting: Faithful or traitor? Beth Rigby’s take

Read more: Is Starmer ‘in office but not in power’?

The prime minister has since apologised to Mr Streeting, who I am told does not want to press for sackings in No 10 in the wake of the briefings against him.

But the saga has further damaged Sir Keir and increased concerns among MPs about his suitability to lead Labour into the next general election.

Insiders clearly concluded that the ill mood in the party, coupled with the recent hits to the PM’s political capital, makes manifesto-breaking tax rises simply too risky right now.

But it also adds to a sense of chaos, given the chancellor publicly pitch-rolled tax rises in last week’s news conference.

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Home secretary admits illegal immigration numbers still ‘too high’ under Labour – but says Farage can ‘sod off’

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Home secretary admits illegal immigration numbers still 'too high' under Labour - but says Farage can 'sod off'

The home secretary has admitted the UK’s illegal immigrant numbers are “too high” – but said Nigel Farage can “sod off” after he claimed she sounded like a Reform supporter.

Shabana Mahmood, speaking just after announcing a major policy change on migration, said she was “horrified” by the 27% increase of irregular arrivals in the year to June.

Speaking to Sky News’ political editor Beth Rigby, the home secretary said: “I acknowledge the numbers are too high, and they’ve gone up, and I want to bring them down.

“I’m impatient to bring those numbers down.”

She refused to “set arbitrary numbers” on how much she wanted to bring illegal migration down to.

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Beth Rigby: The two big problems with Labour’s asylum plan

Earlier on Monday, Ms Mahmood announced a new direction in Labour’s plan to crack down on asylum seekers.

The “restoring order and control” plan includes:

• The removal of more families with children – either voluntarily through cash incentives up to £3,000, or by force;
• Quadrupling the time successful asylum seekers must wait to claim permanent residency in the UK, from five years to 20;
• Removing the legal obligation to provide financial support to asylum seekers, so those with the right to work but choose not to will receive no support;
• Setting up a new appeals body to significantly speed up the time it takes to decide whether to refuse an asylum application;
• Reforming how the European Convention on Human Rights (ECHR) is interpreted in immigration cases;
• Banning visas for countries refusing to accept deportees;
• And the establishment of new safe and legal refugee routes.

Read more: Everything you need to know about Labour’s plans

Shabana Mahmood has two really big problems

The home secretary wants to make it less attractive for illegal migrants to try to get to the UK by making it much harder to get permanent residence here, by overhauling human rights laws to make it harder for illegal migrants to stay, and by suspending UK visas to some countries who refuse to take back illegal migrants.

That’s the plan, but there are two really big problems.

The first one is the Labour Party.

Labour knows it has to try to win back voters turning to Reform, but also risks a backlash from those with more liberal values who believe Mahmood is abandoning what Labour stands for to them.

That’s the politics. But on the policy, they just have to deliver and so much is at stake.

There’s no doubt Keir Starmer’s Number 10 is in real trouble.

There’s now open chatter about whether he should lead Labour into the next general election and whether his chancellor really is the person to deliver on the economy as she faces into that very difficult budget.

With the government in the doldrums, there is a lot riding on this policy and this politician.

Beth was speaking after her interview with Shabana Mahmood, watch her full analysis in the video above.

Reform UK leader Nigel Farage said the plan was much like something his party would put forward, and said Ms Mahmood sounded like a Reform supporter.

The home secretary responded with her usual frankness, telling Rigby: “Nigel Farage can sod off. I’m not interested in anything he’s got to say.

“He’s making mischief. So I’m not going to let him live forever in my head.”

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Home secretary announces details on asylum reform

You might need our support, says Badenoch

Her plans have also been tentatively welcomed by the Conservatives, with Kemi Badenoch suggesting the home secretary work with her in case of a rebellion by Labour MPs.

The backing of Tory MPs could “come in handy”, Ms Badenoch said.

The government’s attempts to cut the welfare bill earlier this year were thwarted by its own backbenchers, and the proposals announced on Monday have already attracted backlash from some on the left of the Labour Party.

Nadia Whittome MP called Ms Mahmood’s plans “dystopian” and “shameful”, while Richard Burgon MP said she should change course now rather than be forced into a U-turn later.

Read more:
How the UK and Denmark’s immigration policies compare

Nigel Farage said the home secretary was sounding like a Reform supporter
Image:
Nigel Farage said the home secretary was sounding like a Reform supporter

Mahmood’s warning to Labour MPs

But Ms Mahmood has warned her colleagues that disrupting her bid to reform the asylum system – thus hoping to bring down the number of small boat crossings – risks “dark forces” coming to prominence.

Speaking in the House of Commons on Monday evening, Ms Mahmood said: “If we fail to deal with this crisis, we will draw more people down a path that starts with anger and ends in hatred.”

She later told Beth Rigby that Reform wanted to “rip up” indefinite leave to remain altogether, which she called “immoral” and “deeply shameful”.

The home secretary, who is a practising Muslim, was born in Birmingham to her Pakistani parents.

Earlier, in the House of Commons, she said she sees the division that migration and the asylum system are creating across the country. She told MPs she regularly endures racial slurs.

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New campaign backs introduction of Graduated Driving Licences

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New campaign backs introduction of Graduated Driving Licences

MPs and bereaved families have launched a new campaign urging the government to re-think its position on introducing Graduated Driving Licences.

The event, in Parliament, came at the start of Road Safety Week and ahead of the government’s highly anticipated new road safety strategy, the first in a decade, which could be published next month.

Kim Leadbeater MP told the gathering that the idea for tougher rules for new drivers “transcends party politics” and could leave to “saving people’s lives”.

Five young adults died in a crash in Ireland on Saturday night. Pic: PA
Image:
Five young adults died in a crash in Ireland on Saturday night. Pic: PA

Organisations, including fire services, police and crime commissioners, motoring organisations as well as road safety charities, are behind a new website, “Protect Young Drivers: Time for Change”, which documents the case for introducing stronger measures.

Graduated Driving Licences (GDLs) is a system designed to give new drivers a staggered approach to gaining full privileges on the road, such as driving at night or with a full car of passengers.

The system has been successful in countries including Canada and Australia at reducing the number of young people killed or seriously injured.

“I feel as a bereaved parent we are very easily dismissed”

More on Roads

Last year 22% of fatalities on Britain’s roads involved a young person behind the wheel.

Data released by the Department for Transport also shows that male drivers aged 17-24 are four times more likely to be killed or seriously injured than all drivers aged over 25.

At the start of the launch a one minute silence was held to remember victims of road traffic accidents – including five young adults who died in a crash in Ireland on Saturday night.

Chris Taylor, who lost his 18-year-old daughter Rebecca in a road traffic collision in 2008, said the grief doesn’t go away.

“I feel as a bereaved parent we are very easily dismissed,” he said. “We’ve got an opportunity. Together we are a movement that can create real change.”

The Department for Transport has previously told Sky News it is not considering GDLs.

“Every death on our roads is a tragedy and our thoughts are with everyone who has lost a loved one in this way,” said a spokesperson.

“Whilst we are not considering Graduated Driving Licences, we absolutely recognise that young people are disproportionately victims of tragic incidents on our roads and continue to tackle this through our THINK! campaign.

“We are considering other measures to address this problem and protect young drivers, as part of our upcoming strategy for road safety – the first in over a decade.”

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Labour MPs fear wipe out at next local election – as chancellor’s career is ‘toast’

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Labour MPs fear wipe out at next local election - as chancellor's career is 'toast'

Many Labour MPs have been left shellshocked after the chaotic political self-sabotage of the past week.

Bafflement, anger, disappointment, and sheer frustration are all on relatively open display at the circular firing squad which seems to have surrounded the prime minister.

The botched effort to flush out backroom plotters and force Wes Streeting to declare his loyalty ahead of the budget has instead led even previously loyal Starmerites to predict the PM could be forced out of office before the local elections in May.

“We have so many councillors coming up for election across the country,” one says, “and at the moment it looks like they’re going to be wiped out. That’s our base – we just can’t afford to lose them. I like Keir [Starmer] but there’s only a limited window left to turn things around. There’s a real question of urgency.”

Another criticised a “boys club” at No 10 who they claimed have “undermined” the prime minister and “forgotten they’re meant to be serving the British people.”

There’s clearly widespread muttering about what to do next – and even a degree of enviousness at the lack of a regicidal 1922 committee mechanism, as enjoyed by the Tories.

“Leadership speculation is destabilising,” one said. “But there’s really no obvious strategy. Andy Burnham isn’t even an MP. You’d need a stalking horse candidate and we don’t have one. There’s no 1922. It’s very messy.”

More on Labour

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Starmer’s faithfuls are ‘losing faith’

Others are gunning for the chancellor after months of careful pitch-rolling for manifesto-breaching tax rises in the budget were ripped up overnight.

“Her career is toast,” one told me. “Rachel has just lost all credibility. She screwed up on the manifesto. She screwed up on the last two fiscal events, costing the party huge amounts of support and leaving the economy stagnating.

“Having now walked everyone up the mountain of tax rises and made us vote to support them on the opposition day debate two days ago, she’s now worried her job is at risk and has bottled it.

“Talk to any major business or investor and they are holding off investing in the UK until it is clear what the UK’s tax policy is going to be, putting us in a situation where the chancellor is going to have to go through this all over again in six months – which just means no real economic growth for another six months.”

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Why is the economy flatlining?

Read more:
Starmer and Reeves ditch plans to raise income tax
Former chancellor Osborne is shock contender to head HSBC

After less than 18 months in office, the government is stuck in a political morass largely of its own making.

Treasury sources have belatedly argued that the chancellor’s pre-budget change of heart on income tax is down to better-than-expected economic forecasts from the Office for Budget Responsibility.

That should be a cause of celebration. The question is whether she and the PM are now too damaged to make that case to the country – and rescue their benighted prospects.

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