Chancellor Rachel Reeves is reportedly weighing up an income tax rise in next month’s Budget to help plug a multibillion-pound gap in the public finances.

The Treasury faces a shortfall of more than £30billion, prompting discussions about breaking one of Labour’s key election pledges not to raise income tax.

Some advisers in both the Treasury and Downing Street believe an income tax increase could be the only reliable way to raise enough revenue to avoid further tax hikes later in the parliament, according to sources cited by The Gaurdian.

However, insiders say Ms Reeves is wary of the political fallout such a move could trigger, particularly after already breaching earlier commitments by raising national insurance last year.

The Treasury is reportedly divided over which income tax rates could be targeted if the Chancellor proceeds with a rise.

One option under consideration is adding 1p to the basic rate of income tax, which could raise more than £8billion for the public purse, but such a move risks deepening cost of living pressures for millions of workers.

Alternatively, Ms Reeves may choose to focus on higher earners, in line with her pledge that those with the “broadest shoulders” should bear the greatest burden.

Increasing the higher and additional rates, which apply to earnings above around £50,000 and £125,000 respectively, would raise far smaller sums, around £2billion and £230million.

One senior official said current discussions centred on how much room Ms Reeves wanted to give herself against her fiscal rules.

The chancellor has said she wants to have more than the £10billion she accounted for at the spring statement, which has since been eroded by changing economic forecasts, but has not yet decided how much.

“There is a very live debate going on right now among those planning the budget about how bold we want to be on the headroom,” the person said.

“No one wants it to be £10bn again but there is an argument we go much higher, which will mean we don’t have to come back and do this again and might have space to cut taxes before the budget. If we go down that route however, it makes it more likely that we have to raise income tax – that is the discussion that is going on at the moment.”

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