Business
Government borrowing costs rise in wake of income tax U-turn speculation
Government borrowing costs have risen in the wake of an apparent income tax U-turn by the Chancellor.
Speculation that Rachel Reeves has scrapped her plans to raise income tax at the Budget has sparked a sell-off in UK Government bonds, also known as gilts: the means by which the Government borrows money from private investors.
The Chancellor had been expected to hike income tax in the face of a yawning gap in her spending plans, hinting as recently as Monday that the alternative would be “deep cuts” to public investment.
But the Financial Times has reported that she has now abandoned introducing those plans at the November 26 Budget over fears they could anger both voters and back bench Labour MPs.
The tax rise would break Labour’s election manifesto pledge not to raise income tax, national insurance, or VAT.
Yields on 30-year gilts jumped by up to 14 basis points in early trading, and the yield on 10-year gilts also shot up 12 basis points – rising the most since July.
The yield moves counter to the price of bonds, meaning that prices fall when yields rise.
The pound also felt an initial shock as the markets opened, but then started to recover.
Suggestions that the tax hike could be abandoned was welcomed by Health Secretary Wes Streeting.
He told the PA news agency that the Government did not comment on market movements “as a matter of policy”, but said: “What I would say about this morning is, it is really important that we keep the promises that we made to the public at the last general election.
“Our economy was broken by the Conservatives, so were our public services, but so was trust in politics itself.
“Our job is to rebuild the economy, rebuild our public services, and rebuild trust in politics.”
The Health Secretary also told broadcasters: “The fact there’s been speculation about income tax rises, I think shows two things.
“Firstly, how challenging the situation is in the public finances, and secondly, how determined the Chancellor is to stick to her fiscal rules.
“I think what we’ve learned overnight with some of the latest speculation is it’s probably wise to stop speculating, wait for the Budget. The Chancellor will make the choices she believes are the right choices for the long-term future of the country.”
Culture Secretary Lisa Nandy had earlier insisted Ms Reeves would not “play fast and loose with people’s money” when she was questioned about reports the income tax rise had been abandoned.
According to the Financial Times, the decision not to raise the tax was communicated to the Office for Budget Responsibility on Wednesday, when the Chancellor submitted a list of “major measures” to be included in her Budget.
An income tax rise would help her bridge a fiscal black hole estimated by some economists to be up to £50 billion, but it would also break Labour’s manifesto pledge not to raise income tax, national insurance or VAT.
The prospect of a manifesto breach drew criticism earlier this month from Labour’s new deputy leader Lucy Powell, who said it would damage “trust in politics”.
Having vowed not to return to “austerity” through deeper spending cuts, the Chancellor could now have to rely on increases in a wider range of smaller taxes if she is to stick to her self-imposed rules on debt and borrowing.
The Financial Times suggested that one option would also be to reduce income tax thresholds while keeping tax rates the same, which could raise billions of pounds for the Treasury.
Conservative leader Kemi Badenoch said the reported U-turn was “good (if true)”.
Liberal Democrat deputy leader and Treasury spokeswoman Daisy Cooper described the move as an “11th hour screeching U-turn” but said struggling families could be spared “yet another punch-in-the-stomach Budget”.
Food bills are set to soar as much as 10 per cent this year as a direct consequence of the Iran war, a key industry body has warned.
The Food and Drink Federation (FDF), which represents 12,000 food and drink manufacturers, has hiked its inflation forecast for the year from 3.2 per cent to between nine and 10 per cent.
During the 2022 cost of living crisis, food inflation rose at a rate of 10.9 per cent, figures from the Food and Drink Federation (FDF) show, while the following year was even worse at 14.6 per cent.
Since then, it had dropped back to 2.7 per cent (2024) and 4.2 per cent (2025), but while this year had originally been forecast to deliver food inflation of 3.2 per cent, the latest assessment is that it will instead see a huge rise in the second half of 2026.
The FDF said the current situation is “unprecedented and hard to predict”, but it’s “clear that food inflation is going to rise in the months ahead”.
How much that adds to the average bill depends on the size and frequency of a consumer’s usual grocery habits, but on average, bills could rise by around £588, according to some estimates.
Consumer rights and review site Which? frequently assesses UK supermarkets for cost, and at the start of 2026, an average basket of 89 shopping products cost £161.56 at Aldi and up to £217.02 at Waitrose.
Assuming food inflation lands at the mid-point of the FDF forecast, 9.5 per cent, and that all products and supermarkets applied that uplift equally, that would move the costs of those shops up to £176.91 and £237.64 respectively.
Research from confused.com suggested the average UK household spent £119 each week on food shopping, which is £6,188 each year; a 9.5 per cent uplift to that equates to an extra £588 annually, or a total of just over £130 per week and £6,775 annually.
Chancellor Rachel Reeves is due to meet with some supermarket chiefs on Wednesday, including Sainsbury’s and Tesco, over discussions to assess the upcoming impact of price rises on the cost of living. The Treasury has described it as a “fact-finding” conversation.
Last month, Asda boss Allan Leighton called on Labour to do more to help businesses after creating “a lot of constraints” for them.
For food manufacturers, there is both a concern now and another yet to come in terms of energy cost rises.
Diesel – used in farm machinery – is up by 80 per cent since the start of the war, while fertiliser costs could increase further, as well as supply being constrained. The FDF also points to lost sales due to cancelled shipments to the Middle East, with UK firms regularly exporting cheese, cereals, chocolate and more to the region.
Dr Liliana Danila, chief economist at The Food and Drink Federation, said: “The food and drink sector is already feeling the force of this geopolitical shock. As one of the UK’s energy-intensive industries, manufacturers are facing mounting energy bills, rising transport and packaging costs and disruption across key supply chains.
“These pressures are hitting simultaneously and are a significant challenge for businesses to absorb.
“The current situation is unprecedented and hard to predict; however, given the scale and speed of these cost increases, and despite companies’ best efforts not to pass price increases on, it’s clear that food inflation is going to rise in the months ahead.”
The FDF says its upgraded inflation figures were based on “assumptions that the Strait of Hormuz opens to cargo traffic within the next two to three weeks”, as has been suggested by Donald Trump this week, and that most commodities, including oil, gas and fertiliser production, return to normal within a year.
In the past few months, the FDF has repeatedly called for the government to offer support to businesses in the sector from rising energy bills in the same way as it does to those in some other manufacturing areas.
GST collections: India’s net Goods and Services Tax (GST) collections increased to Rs 1.78 lakh crore in March 2026, marking a rise of 8.2% compared to the previous month, according to official figures released on Wednesday.Gross GST revenue for March stood at Rs 2 lakh crore, which is an 8.8% increase over the same month last year.Abhishek Jain, Indirect Tax Head & Partner, KPMG says, “GST collections continue to show steady 9% annual growth, supported by strong import activity this month and consistent compliance. While export refunds have eased this month but remain healthy overall for the year”Refunds during the month totalled Rs 0.22 lakh crore, up 13.8% on a year-on-year basis, which resulted in net GST collections of Rs 1.78 lakh crore.Domestic GST revenue reached Rs 1.46 lakh crore, registering a growth of 5.9%, while revenue from imports was recorded at Rs 0.54 lakh crore, rising sharply by 17.8% during the period.Post-settlement GST figures across states presented a varied trend. While industrially advanced states recorded strong growth, several others reported a decline.Maharashtra contributed the highest amount to the overall collections at Rs 0.13 lakh crore on a pre-settlement basis, followed by Karnataka and Gujarat.Among states showing an increase in post-settlement SGST collections were Himachal Pradesh, Punjab, Uttarakhand, Haryana, Rajasthan, Uttar Pradesh, Bihar, Gujarat, Maharashtra, Karnataka, Kerala, Tamil Nadu, Telangana and Andhra Pradesh, among others.On the other hand, states such as Jammu and Kashmir, Chandigarh, Delhi, Arunachal Pradesh, Meghalaya, Assam, West Bengal, Jharkhand, Odisha, Chhattisgarh and Madhya Pradesh, among others, registered a decline in post-settlement SGST revenues.
A wave of bullishness swept the Pakistan Stock Exchange on Wednesday, pushing the 100 Index up by more than 5,000 points to reach 153,700.
The surge reflects increased investor confidence and strong trading activity across major sectors.
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