Reeves will raise tax to 'transfer wealth between generations'

The chancellor's plan for a 2p tax increase while cutting national insurance will benefit younger working people, writes Rachel Sylvester

- Rachel Sylvester

Rachel Reeves is poised to raise income tax by 2p while cutting national insurance by the same amount as part of a tax-raising budget designed to transfer wealth between the generations.

The "two up, two down" tax measure is set to be the central announcement in the chancellor's statement on 26 November, according to people familiar with her plans. "It's nailed on," said one source.

The change would represent a significant shift of resources from older pensioners and landlords, who pay income tax but not national insurance, to younger workers who pay both.

It would be a clear breach of Labour's election manifesto commitment not to raise any of the three main taxes - income tax, national insurance and VAT - but senior figures hope that simultaneously reducing national insurance contributions while increasing income tax will allow the chancellor to argue that she is protecting "working people".

However, higher earners could still be hit by the plan. Reeves may limit the national insurance cut to the main rate, which applies to earnings up to £50,270. This would mean that people paid more than this would not receive the deduction and would still pay the higher rate of income tax.