Rachel Reeves has been forced into a chaotic last-minute U-turn on income tax rises, abandoning plans that threatened to tear the government apart.
The chancellor and Sir Keir Starmer have now “ripped up” the proposal amid fears it would ignite a rebellion among Labour MPs and anger voters.
Treasury sources say the OBR was informed this week that the tax rises were off the table, despite earlier signals that they would feature in the 26th November Budget.
The sudden reversal leaves Reeves scrambling for alternative revenue, pushing her towards a patchwork of smaller, targeted tax measures.
Options under review include a gambling levy and higher taxes on high-value property to help plug a £30billion gap.
She has also ditched a planned tax raid on limited liability partnerships after Treasury modelling showed it would cost more than it generated.
Confusion is growing over a proposed “settling-up charge” on wealthy individuals moving assets offshore, with reports split on whether it will survive.
A potential 2p rise in income tax, paired with a 2p cut in national insurance, has firmly been shelved.
Reeves is instead expected to rely on extending the freeze on income tax thresholds, which the IFS says will pull millions more people into higher-rate tax.
With multiple plans collapsing at pace, the chancellor faces shrinking fiscal options and rising political pressure as Budget day approaches.