7 million workers including teachers and police officers would be hit by Reeves' rumoured income tax hike

Rachel Reeves is considering raising income tax to plug a more than £30billion black hole in Britain's finances in a controversial move that would break Labour's manifesto pledge.

The Chancellor is reportedly torn over whether to add 1p to rate of basic income tax or to increase tax for workers on higher rates, following her promise to shoulder the heaviest load on those with the "broadest shoulders".

Under the current system, the basic rate of income tax is doubled to a higher rate of 40% on workers earning £50,271 and above. According to HMRC projections published in June, 7.08 million people pay this higher rate.

However, Robert Salter, partner at tax firm Blick Rothenberg, has warned that a potential hike of the higher rate of income would affect workers on "broadly normal" levels of pay, such as those in essential public sector jobs, like teaching.

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He told The i: “If Reeves were to increase the higher rate of income tax from 40 per cent to 41 per cent in November’s Budget, the reality is that this would actually hit many people on broadly ‘normal levels’ of income, who would not consider themselves particularly rich or well-off.”

Mr Salter said this tax hike would affect teachers, such as those in senior positions like heads of departments, junior doctors working overtime and police officers from sergeant level and above.

“Moreover, as the income tax bands are already frozen until April 2028, and it is possible that this freeze could be extended into 2029 or even 2030, wage inflation will bring more and more so-called ‘ordinary workers’ into this higher rate of tax over the coming years,” he added.

Reeves has declined to rule out raising income tax, telling reporters on Friday that she would “continue to support working people by keeping their taxes as low as possible” but was still “going through the process” of writing the Budget, according to the BBC.

If she were to increase the basic rate, it would be the first time it had been increased since the 1970s.

Currently, income tax kicks in at earnings above £12,750, which is tax-free.

The basic of rate of 20% is applied to income between £12,571 and £50,270, while workers earning £50,271 and above are taxed at 40%. Those earning £125,140 and above are taxed at the additional rate of 45%.

The Chancellor is also reported to be considering cutting the amount of money people can save in cash Isas as part of a drive to encourage investment in stocks and shares.

It is understood that no decision has yet been made and several options are being considered, including halving the allowance from £20,000 to £10,000.

Treasury minister Lucy Rigby told the Telegraph the Government was “looking at the right balance between cash and shares in the Isa”.

She said: “The bottom line is, we want people to be better off and one way we can do that is to build a shareholding democracy in this country.”

Meanwhile, The Times reported that the Chancellor would use the Budget to increase the minimum wage once again, and make further moves towards abolishing lower minimum wage rates for younger people.