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FTSE 100 Live: Income tax U-turn throws Budget into chaos

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The City PM FTSE 100 liveblog with your top market stories.

Welcome back to the City PM markets liveblog.

Government fiascos are the story of the week and each one is sending ripples across markets.

Whilst earlier this week it was a Westminister briefing war with Downing Street appearing to turn on its own out of leadership threats, today it is the Treasury in the hot seat.

Rachel Reeves is now understood to have scrapped plans for a manifesto-breaking income tax hike, despite concerns into how she will fill her fiscal black hole in the forthcoming Budget.

The Chancellor was poised to hike income tax by 2p whilst cutting national insurance by the same amount in a move that would break Labour’s pledge to not raise taxes on ‘working people.’

But new reports are suggesting cabinet backlash and a better-than-expected forecast from the fiscal watchdog has led Reeves to ditch the policy.

The new forecast may be a modest sigh of relief but Reeves still faces a £20bn mountain to climb to restore her fiscal buffer, meaning tax rises are on the cards.

The question now arises – where do they come from?

It’s this very question that’s got the bond markets on edge – the yield on 10-year UK gilts climbed by 13 basis points at the start of trading to 4.57 per cent.

That’s the highest since Rachel Reeves was seen teary in the House of Commons.

Elsewhere, the FTSE 100 is struggling to get off the ground this morning.

Jitters around the economy have led to a sell-off across the banking sector and dragged the blue-chip index over 1.5 per cent into the red.

Here are a few of our top stories from yesterday: