Rachel Reeves has dropped plans to increase income tax rates at the Budget on 26 November, according to reports in the Financial Times.

The newspaper says the chancellor and prime minister U-turned on increasing the tax, which would have broken an election manifesto promise, over fears it would anger voters and Labour MPs.

Speaking to BBC Breakfast, Culture Secretary Lisa Nandy said “no decisions were made or set in stone” until Reeves delivered the Budget in the House of Commons.

In response to the reports, UK government bonds and the pound have come under pressure.

The yield on the benchmark 10-year government bond has risen 0.11% or 11 basis points – a very big move in a short time. Sterling was also lower, falling 0.3% to 1.313 US dollars.

Reeves had not publicly confirmed she would raise income tax rates but had refused to rule it out.

Earlier this month, she also delivered a pre-Budget speech in which she emphasised the need to make “necessary choices” and warned that everyone would have to “contribute”.

If the chancellor has decided not to increase income tax rates, she will have to explore other ways to raise money, in order to meet her self-imposed rules on debt and borrowing while filling a bigger-than-expected hole in the public finances of around £20bn.

She could still opt to extend a freeze on income tax and National Insurance (NI) thresholds. The freeze was introduced in April 2023 and had been due to expire in 2028.

That would mean as salaries rise more people would be pulled above the income threshold at which they either start paying tax and NI or qualify for higher tax rates.

The Institute for Fiscal Studies estimates extending the freeze by two years could raise £8.3bn a year and would mean someone on the minimum wage would be liable to pay income tax if they worked just 18 hours a week.

Another option would be to lower the thresholds which would raise more money than simply extending the freeze.

Asked about the reports, Nandy said “What I can tell you is as somebody who sits around that cabinet table, who has discussions with Rachel and has known her for a long time, is that she won’t play fast and loose with people’s money.

“She does take her promises seriously, and she will do everything that she can to make sure that those choices are the fairest possible choices.”

Conservative leader Kemi Badenoch said: “One retreat doesn’t fix a Budget built on broken promises.

“Reeves must guarantee no new taxes on work, businesses, homes or pensions – and she should go further by abolishing stamp duty.”

Liberal Democrat Treasury spokeswoman Daisy Cooper said: “If true, this 11th hour screeching U-turn might just spare struggling families from yet another punch in the stomach Budget.”

A Treasury spokesperson said: “We do not comment on speculation around changes to tax outside of fiscal events.”

They added: “The chancellor will deliver a Budget that takes the fair choices to build strong foundations to secure Britain’s future.”