Rachel Reeves plans £7.5bn tax rise in budget after U-turn on income tax rates

Rachel Reeves with Keir Starmer on Thursday – after their decision to drop income tax plans – during a visit to an engineering workshop in Anglesey. Photograph: Temilade Adelaja/PA

Rachel Reeves will raise £7.5bn from millions of workers by freezing tax thresholds at the budget, after her decision to scrap controversial plans to raise income tax led to a sell-off in the bond market.

Government sources said the chancellor had decided to maintain the level at which people start paying income tax for two years while abandoning plans to raise the headline rate, which would have broken a manifesto promise.