Rachel Reeves is said to be thinking of imposing a "stealth tax rise" next month as she grapples to find ways to plug the fiscal black hole ahead of the Spring statement.
The Chancellor is allegedly searching for tax increases to patch up economic forecasts and flattening growth - making it more challenging for her to abide by her own fiscal rules.
One of the options Reeves may consider is extending the income tax freeze following 2028-9, pushings thousands into higher tax bands as a result of increasing wages, an aide has told the Financial Times.
Reeves has consistently been unable to deny allegations that she is considering tax increases to save the Government from the fiscal black hole.
Last year, she assured the British taxpayer that she would not “come back with more tax increases”
PA
However, last year, she assured the British taxpayer that she would not “come back with more tax increases”.
The Chancellor is now preparing her team to draft up her Spring Budget on March 26 - which is not currently set to include large tax and spending packages.
It is understood that she intends to focus on minimising public spending if necessary - although the Treasury has refused to throw out potential tax rises.
One insider told the FT that she was taking “nothing off the table”.
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The Institute for Fiscal Studies (IFS) think tank has announced that freezing income tax thresholds beyond 2028-9 could rake in £4billion each year, if National Insurance brackets were frozen.
IFS chief Paul Johnson announced that making such moves would be “relatively politically painless” and that Reeves could always unfreeze the threshold at a later date if the economy improves.
The freeze would not require further legislation in the Commons but could be considered a positive for the public finances later on by the Office for Budget Responsibility.
Johnson said: “I’m surprised the Chancellor didn’t extend the freeze in the Budget – it would have given them a bit more headroom against their targets.”
The freeze would not require further legislation in the Commons but could be considered a positive for the public finances
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A Treasury spokesman said: “Our commitment to fiscal rules and sound public finances is non-negotiable.
“As the Chancellor has said, the Office for Budget Responsibility will publish their updated forecast on March 26, and she will respond to it then.”
Addressing the House of Commons’ Treasury select committee in November, Reeves said: “We have now set the envelope for spending for this parliament.
“We are not going to be coming back with more tax increases or more borrowing,” she assured.
