Is Reeves about to repeat this 1970s horror budget?

Is history about to repeat itself, 50 years after the last time a Labour chancellor raised the basic rate of income tax? Now that Rachel Reeves has dumped Labour's election pledge not to increase national insurance, income tax or VAT, she's tipped to raise income tax by 2p on 26 November.

Politics Hub: Latest updates and analysis Back in 1975, Labour's chancellor, the old bruiser Denis Healey, did just that, though back then the basic rate of income tax was 33%, and he increased it to 35%. Plenty of parallels… It's claimed there are similarities between the state of UK politics and the economy in 1975 and today.

Labour had won a general election the year before, for instance. Healey claimed he'd inherited an economy in a mess from Edward Heath's Conservative government.

Sound familiar? His spending cuts were seen as a U-turn and triggered an angry backlash from left-wing Labour MPs. Sound familiar? In 1975, the Conservatives had a new leader - a woman, for the first time - in Margaret Thatcher, who even her supporters admit, struggled in her first year.

Sound familiar? In the 70s, Healey announced he was reviewing the options for a wealth tax, just as Reeves has been urged to, by former Labour leader Neil Kinnock and union leaders. And just as the Tories claim higher taxes will trigger a brain drain in 2025, Mick Jagger and the Rolling Stones had left for France in 1971 and David Bowie moved to Switzerland in 1976.

A phrase often attributed to Healey was that he wanted to "squeeze the rich until the pips squeak". In fact, what he said, in 1974, was that he "wanted to squeeze property speculators until the pips squeak".

…but it could be worse! But before we get too depressed about 26 November, the economy was in a much worse state in the 1970s, with inflation heading towards 25%, unemployment rising and the pound falling. It was called "stagflation".

Back then, the world was reeling from an international crisis created by a massive rise in oil prices, though a public sector spending spree, with huge pay settlements won by the unions, didn't help. "The budget I have presented today is a hard one for all of us in Britain," Healey concluded at the end of his horror budget.

"It is dictated by the harsh reality of the world we live in. "A severe budget is a necessary element in any strategy for improving the overall performance of our economy, which has been lagging increasingly behind most industrial economies for more than a single generation." Responding, the new Tory leader at the time, Margaret Thatcher, taunted foreign secretary James Callaghan for "muttering away" and concluded: "I remember him making a budget speech in which he summed up his budget as, 'steady as she goes'.

"The present chancellor of the exchequer seemed to be saying that this one was, 'steady as she sinks'." Well, humour wasn't her strongest suit. These days inflation is a mere 3.8%, although that's nearly double the Bank of England's 2% target, as the shadow chancellor Sir Mel Stride pointed out after the latest figures.

"Combined with her £25bn jobs tax, Rachel Reeves is pushing inflation higher and higher," Sir Mel declared. "Starmer and Reeves do not have the backbone to sort this mess out." Read more: What taxes could Reeves raise? Sir Keir Starmer spelt out where he claims the blame lies for "tough but fair decisions" in 2025 when he addressed Labour MPs - reported to be "grim-faced" as they listened - on Monday evening.

"It's becoming clearer that the long-term impact of Tory austerity, their botched Brexit deal and the pandemic on Britain's productivity is worse than even we feared," he said. Ah yes, Tory austerity, Brexit, and the pandemic, they're what has caused the £20bn (or is it £30bn?) black hole in the public finances, according to the PM.

Does history tell us what might happen next? Healey's budgets didn't end well for Labour. He was forced to go cap in hand to the International Monetary Fund for a bail-out in 1976 and Labour lost the 1979 general election to Thatcher.

Could something similar happen again? At least the 1974-79 Harold Wilson-James Callaghan went full-term, even though Callaghan was forced into a Lib-Lab pact to survive. This week Nigel Farage predicted the Starmer government will only last two more years.

Wishful thinking, no doubt, as he basks in a healthy opinion poll lead. "My view is that in two budgets' time the markets will actually force the chancellor into what will be a genuine austerity budget, at which point the left in the Labour Party won't buy it," he said.

"And it's why I still stand by my prediction that there will be a general election, caused by economic collapse that will happen in 2027." In his 15 April budget in 1975, Healey didn't just raise the basic rate of income tax. Other rates went up by two percentage points as well.

Only the top 83% rate - yes, 83%! - was left unchanged. In his first budget, in March 1974, Healey had raised the basic rate of income tax rates from 30% to 33%, a new tax band at 38% was introduced, and the top rate increased from 75% to 83%.

More was to come in 1975. As well as the rise in the basic income tax rate, a 25% rate of VAT was applied to "luxury goods.