To tax or not to tax? Rival camps vie for chancellor's ear in 'chaotic' process

There were always two camps in the internal government debate over what to do at this month's budget, one of the most consequential in recent history.

- Kiran Stacey Heather Stewart

One set of advisers believed that, given the scale of the fiscal challenge facing the chancellor, she should do what no chancellor has done in 50 years and put up income taxes.

The other worried that breaking a key manifesto pledge would be political suicide, and that Reeves should find other ways to raise taxes - what some called a "smorgasbord".

For weeks, Reeves has appeared to side with the first camp, delivering speeches warning of difficult choices to come and telling a BBC interviewer that keeping her manifesto promises would mean cutting spending.

Then on Wednesday, all that changed. With the prime minister facing a political backlash following a botched attempt by aides to shore up his leadership, he and the chancellor agreed that the planned income tax rise should not go ahead.

Government insiders say the dramatic U-turn was taken after official forecasts showed the government's black hole was closer to £20bn than £30bn, allowing the chancellor to take a less politically risky path.

Some officials say, however, that the forecasts did not change drastically in the last week and that the last-minute change of approach was motivated by a desire not to exacerbate the sense of political turmoil surrounding the government.

"There are good economic reasons not to raise income tax," said one government official.

"But politics played a part-it always does." For several weeks, ministers and officials have juggled various options during budget discussions, working some plans which included an income tax rise and some that did not.

They knew the Office for Budget Responsibility (OBR) was planning to downgrade its forecasts for the UK's economic productivity, leaving a £21bn gap in the government's financial plans.