Chancellor Rachel Reeves has signaled that her November 26 budget will ask more Britons to shoulder the burden of repairing the country’s public finances – even if it means breaking Labour’s manifesto promise not to raise income tax.
In a speech this week, Reeves warned that “tough decisions” were inevitable if Britain wanted to protect the NHS, reduce national debt and keep inflation under control. Their language marked a departure from previous assurances that only those with the “broadest shoulders” would face higher taxes.
“If we want to shape Britain’s future together, we must all play our part,” she said. “If this requires difficult decisions, we will be guided by the interests of working people.”
While the Chancellor claimed that fairness would be the foundation of her financial plans, her comments at Westminster were widely interpreted as preparing voters for a wider tax rise that could hit millions of middle-income workers.
At the heart of the political tension is how Labor defines “working people” – a term that potentially excludes much of the upper middle income bracket. Treasury insiders suspect the government considers those earning between £45,000 and £46,000 a year to be “working people”.
This would leave around a third of the UK workforce outside the protected group, potentially leaving professionals such as paramedics, teachers, software developers and vets exposed to higher income tax or national insurance contributions.
Data from the Office for National Statistics (ONS) shows that around 40% of male employees and 20% of female employees earn more than £45,000. In London, where the average full-time salary is almost £50,000, the proportion is significantly higher – meaning the capital’s workforce could be hardest hit.
Ironically, Labour’s own anti-inflationary public sector pay bonuses could see the Chancellor giving with one hand and taking with the other. NHS pay scales show senior paramedics, speech therapists and school nurses now earn above the proposed threshold.
Similarly, the National Education Union estimates that almost all principals and senior teachers fall into the group likely to face higher taxes. Years of frozen income tax thresholds – known as “fiscal drag” – have already pushed many of these workers into higher tax brackets.
Britain’s finances are increasingly dependent on a small group of top taxpayers. According to HMRC forecasts, 1.2 million people earning over £125,140 – just 3% of all income tax payers – contribute around 40% of total income tax revenue.
Income tax now raises more than £300 billion a year, making it the government’s largest source of revenue. But as tax policy experts point out, the average worker in Britain still pays less income tax than their counterparts in most major European economies.
“The UK system has become top-heavy,” said Chris Sanger, head of tax policy at EY. “If you raise rates for those with the highest incomes, you risk a loss of mobility and ultimately income. In a post-pandemic world where remote work is widespread, the wealthy will be able to move more easily than ever before.”
The political risk for Labor is that a tax hike on higher earners could alienate the very middle-class voters who helped win the 2024 election. YouGov polling shows that households earning more than £50,000 are disproportionately likely to vote Labor, while support for the reform was strongest among lower income groups and Conservative voters were more likely to be older people and pensioners.
If Reeves moves forward, she will face a delicate balancing act: funding the public services that Labor has promised to revitalize while avoiding a backlash from the professionals and entrepreneurs who support Britain’s tax base.
As one city economist put it: “Reeves is walking a fiscal tightrope – between fairness and flight risk. The more she taxes those who can move, the less they have left to pay.”
