Chancellor Rachel Reeves will not raise the basic, higher or additional rates of income tax at the forthcoming UK Budget, according to government sources cited by the BBC. As first reported by the Financial Times, a brighter set of projections from the Office for Budget Responsibility (OBR) helped narrow the fiscal gap and changed the calculation.

Earlier in November, the Treasury asked the OBR to cost an option pairing a 2p increase in income tax rates with a 2p cut in National Insurance to address what was then judged a £30bn shortfall. Updated OBR assessments point to stronger wage growth and tax receipts, trimming the hole by roughly £10bn to nearer £20bn, easing pressure for a headline rate rise.

Markets reacted in real time. UK government borrowing costs ticked up on the early headlines before easing as subsequent reports suggested the fiscal hole may be smaller than feared. For investors, the takeaway is simple: gilt pricing remains highly sensitive to tax choices and the amount of OBR‑certified fiscal headroom the Chancellor can claim.

Instead of headline rate rises, ministers are weighing threshold decisions. Extending the freeze on income tax and National Insurance thresholds beyond 2028-or reducing them-would raise revenue by pulling more earnings into tax bands. It would not breach Labour’s manifesto wording, but it would increase bills for many as inflation quietly does the work.

That would also mark a shift from Reeves’s 2024 Budget stance, when she told MPs that personal tax thresholds would resume inflation uprating from 2028–29. The Institute for Fiscal Studies estimates a two‑year extension to the freeze could raise about £8.3bn a year and would bring a minimum‑wage worker into income tax after roughly 18 hours a week.

For households, the practical point is take‑home pay. With thresholds static, pay rises risk dragging more income into the 20% band and nudging some earners into the 40% bracket. Sensible housekeeping includes checking pension contributions, making full use of ISA allowances, and timing bonuses across tax years where contracts allow.

For SMEs, payroll planning needs an update. A longer freeze would push more staff across NIC and higher‑rate boundaries, lifting employment costs even if headline pay awards are modest. Finance teams should refresh cash‑flow forecasts, stress‑test wages at mid‑single‑digit inflation, and review HMRC‑compliant salary sacrifice schemes that support retention without bloating cash pay.

Other potential revenue raisers are reportedly under consideration at the Treasury, including a levy on electric vehicles and higher charges for gambling companies. None is confirmed, but the preference appears to be broadening the base and tightening reliefs before touching the headline income tax rates promised in the manifesto.

Politics still matters here. Labour MPs have been wary of breaking a campaign pledge not to raise the three income tax rates; senior figures such as Lucy Powell and Wes Streeting have urged the government to keep its word. The Conservatives, led by Kemi Badenoch, accused the Treasury of mixed signals, while the Liberal Democrats pressed Reeves to explain the change in approach and the SNP described the situation as disorderly. Government sources insist the decision is unrelated to recent turbulence around the prime minister’s future.

Officials say the Budget strategy is unchanged: build a bigger buffer-currently around £10bn-against the borrowing rules, ease cost‑of‑living pressures, and make what they argue are fair choices on tax. Downing Street has framed the objective as creating more resilient public finances and giving businesses confidence to invest, with the OBR’s final numbers set to define how much room the Chancellor really has.