On 14 November 2025, the Keir Starmer-led UK government announced that it would not raise income tax rates in the upcoming budget, overturning earlier indications that the government might increase such taxes. 

The decision follows recent forecasts by the Office for Budget Responsibility (OBR) showing a somewhat improved fiscal outlook. One of the sources familiar with the matter confirmed that, in light of those data, there are no plans to hike income tax rates. 

What’s driving the change

The finance minister, Rachel Reeves, had earlier commented that “we will all have to contribute,” which many interpreted as a signal that she might break the election pledge not to increase income tax. 

However, markets reacted adversely when the possibility of a tax rise increased borrowing yields sharply, 10-14 basis points on 20- to 30-year government bonds, with the 10-year gilt yield rising ~8bps to 4.56%. 

In response, the government has indicated that instead of raising income tax rates, it may rely on a “mix” of smaller tax changes or adjustments (for example, lowering income thresholds) to raise revenue. 

Implications for markets & policy

• By signalling that income tax rates will not increase, the government is seeking to reassure voters and business alike, maintaining the manifesto promise made by Starmer and Reeves to avoid uphill hikes for “working people.” 

• But some analysts caution that relying on a patchwork of smaller tax changes may undermine credibility and lead to greater uncertainty, which could weigh on growth and investor confidence. For instance, one economist noted that a “haphazard patchwork of smaller anti-growth tax increases… would be a bad outcome.” 

• For crown-bond markets, the reversal of a larger income-tax increase may moderate the risk of renewed investor flight, but the recent yield spike underlines the sensitivity of markets to fiscal policy surprises.