Chancellor makes no effort to quell tax rise fears in Labour conference speech

Following Chancellor Rachel Reeves’ conference speech, Quilter’s Rachael Griffin considers what it signals for November’s budget, from fiscal drag and frozen thresholds to the pressure of raising revenue without breaking manifesto pledges.

With the UK’s economic outlook challenging and tax rises widely expected, Griffin examines how fiscal drag, personal tax thresholds, and pressures on high earners could shape the government’s approach, balancing the need for revenue with manifesto commitments and political risk.

Griffin comments: “Chancellor Rachel Reeves’ address to conference set the tone for her 26th November budget, with recognition of the dire economic backdrop and the need for tough decisions going forward. Tax rises had already been deemed all but certain, and the Chancellor made no effort to quell such fears today.

“While she did not explicitly repeat Labour’s manifesto commitment not to raise taxes on working people, Reeves did stress that she would not break the trust of voters and would avoid measures that harm ordinary working people. This may suggest the door remains slightly ajar for indirect tax changes or threshold adjustments in the upcoming budget.

“While headline rates may remain untouched, it seems likely the public could still face a rising tax burden through fiscal drag, and potentially through higher taxes on the wealthy. This could come in the form of an extension to the existing freeze on income tax thresholds, for example, which has already resulted in a huge increase in tax take and has pulled many people into paying tax for the first time, or even into higher tax brackets.

“The Chancellor used the rumoured freeze extension as her ‘rabbit out of the hat’ moment at last year’s budget, saying plainly that extending the threshold freeze would hurt working people and would go against Labour’s manifesto. Instead, she declared that from 2028–29 personal tax thresholds would be uprated in line with inflation. Opting to row back on this position could be damaging, but the Chancellor has been left with few other options if she wishes to avoid hiking headline tax rates.

“Several organisations, including business groups like the CBI and think tanks such as the Resolution Foundation and the Institute for Government, have urged the Chancellor to reconsider Labour’s tax pledges. Many proposals have surfaced, such as the Resolution Foundation’s suggestion of a 2p rise in income tax offset by a cut in national insurance – a move designed to broaden the tax base. While changes to personal tax would be a tough pill for the public to swallow, these recommendations reflect a growing consensus that significant tax reform – without tinkering around the sides and adding greater complexity to the system – is surely necessary to meet fiscal rules without resorting to deep spending cuts. Arguably, there will need to be a mix of the two, but the government has so far had limited success in seeing such cuts through.

“Reeves also emphasised her commitment to economic and fiscal stability, stating that Labour would not rely on increased borrowing or spending cuts to balance the books. The Office for Budget Responsibility is expected to downgrade its growth forecasts, and the latest public sector finance figures from the Office for National Statistics showed the budget deficit for the financial year to date was a staggering £62bn, so the pressure on the Treasury to raise revenue is intensifying. With limited room for manoeuvre, Reeves will be left with no option but to raise taxes in one way or another. The challenge will be doing so in a way that aligns with the government’s commitment to fairness and economic stability, while avoiding the political fallout of breaking manifesto promises.”