Badenoch warns of 'stealth tax bombshell' coming in Reeves's Budget

If the Chancellor uses next week’s Budget to extend the freeze in the income tax thresholds it will mean “hiking taxes on people in work to give handouts to people on benefits”, the Tory leader will claim.

Mrs Badenoch will say the U-turn on welfare reforms following a Labour revolt and the expected scrapping of the two-child benefit cap will leave Ms Reeves needing to find £8.5 billion.

The Chancellor is thought to be considering extending the freeze on taxation thresholds to help plug the gap in her spending plans and bolster the “headroom” she has to avoid breaking her Budget rules.

Freezing the thresholds means that, as wages rise, more people get dragged into paying tax or shifted into higher bands.

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Keeping national insurance and income tax thresholds frozen for two further years until April 2030 would raise around £8.3 billion a year by 2029–30 according to the Institute for Fiscal Studies.

At a press conference in London on Tuesday, Mrs Badenoch will say: “We need to call this out for what it is: Labour are raising taxes to pay for Keir Starmer’s weakness on welfare cuts.

“He has already U-turned on £5 billion of welfare savings in the face of pressure from his left-wing backbenchers.

“And because Starmer has no backbone, he is now set to lift the two-child benefit cap. That’s around £8.5 billion of additional welfare spending.”

She will claim Sir Keir and Ms Reeves are considering “freezing income tax thresholds so that more and more people are dragged into higher rates through a stealth tax bombshell”.

Mrs Badenoch will say: “They’re hiking taxes on people in work, to give handouts to people on benefits, the last group of people who might still vote Labour.

“It’s not fair, it’s not right, and we will oppose them every single step of the way.”

She will set out the Tory alternative which would involve dramatic cuts in public spending.

A Labour spokesman said: “It’s astonishing that the Tories have the barefaced cheek to lecture anyone.

“After crashing the economy which sent mortgages rocketing, and leaving a £22 billion blackhole in the public finances, Kemi Badenoch is still yet to apologise.

“Welfare and debt spiralled on their watch, and public services were cut down to the bone. Now they’re promising to take us back to austerity with £47 billion worth of cuts. That means money drained out of your local hospital, your child’s school, and your local police.

“The Conservatives couldn’t be trusted then, and they can’t be trusted now.”