Budget Labour MPs buttered up at breakfast to avert tax rebellion

If Keir Starmer's election campaign was carrying a Ming vase across an ice rink, then this budget, according to one minister, is like "wrestling a squirrel across a minefield".

- Jessica Elgot Kiran Stacey Eleni Courea

It is an allusion to the biggest risk for Rachel Reeves: not the markets or big business, but Labour MPs. It was those MPs who were the key audience for the chancellor's highly unusual speech this week preparing the ground for possible income tax rises in the budget.

Downing Street insiders are talking openly about an imminent rise in income tax. “You don’t exactly have to be a genius to have worked out we're doing it,” one said. MPs are being buttered up with breakfasts in No 10, and professors and thinktank veterans are giving private lessons in Economics 101. Reeves has been seeing small groups by region, mostly as a listening exercise.

For a government with such a large majority, it would seem extraordinary to be so concerned about a parliamentary backlash. But the parliamentary Labour party tasted power at the welfare vote.

“It’s colleagues who are having the most impact on the way the markets move,” said one minister closely involved with the budget preparations. “Whether it’s the two-child benefit cap or the mayor of Greater Manchester saying never mind the bond markets, it literally adds to our borrowing costs.”

Another senior adviser said: “The welfare reform votes in the summer are still a massive issue for bond markets - if you read any analyst note it will still get mentioned. Before there was a headline assumption that the government has a massive majority and can do what it wants.”

But unlike on previous occasions, this time Downing Street is determined not to be caught off-guard by a rebellion - especially if it intends to break its manifesto pledge and raise income tax.