'Clueless. They're making even good news look bad'

Treasury sources insist the unexpected Budget reversal on income tax rises follows better-than-expected economic data

- DAVID MADDOX CAITLIN DOHERTY KATE DEVLIN

Downing Street was blamed yesterday for forcing Rachel Reeves to reverse Budget plans to raise income tax in what was described as “a panic move” to save Sir Keir Starmer’s premiership.

Labour MPs, ministers and the markets were left stunned by a Financial Times report that the chancellor has now abandoned the measure despite two weeks of clear hints in public speeches that she was poised to break the party’s manifesto pledge.

With markets spooked by the sudden U-turn, the cost of borrowing for the government spiked, with 10-year gilts up 12 basis points at 4.56 per cent.

Treasury sources insisted the decision had been taken because of better-than-expected economic data, but others blamed interference from Downing Street in a bid to protect the prime minister from a potential leadership challenge.

One minister told The Independent that No 10 is “gripped by a state of panic”, while a Labour MP confessed: “I don’t think they have a clue. They’re making even good news look bad.”

The drama unfolded after the chancellor laid the groundwork for tax hikes, including several hints that she would need to break Labour’s election pledge not to raise income taxes.

But the reversal came after the prime minister was under siege following a briefing to journalists - reportedly by Downing Street officials - that health secretary Wes Streeting was planning a leadership bid.