Rachel Reeves last night faced accusations that she ripped up her Budget to head off another revolt from Labour MPs who feared breaking the party’s manifesto promise on tax would be electoral suicide.

The City was stunned on Friday as it emerged that the Chancellor no longer plans to increase income tax in order to help balance the books, despite preparing the ground for the move for several weeks.

But her U-turn came after a succession of warnings from senior Labour figures that voters would not forgive the party if it went back on its pre-election pledge not to ‘increase National Insurance, the basic, higher, or additional rates of income tax, or VAT’.

And the already rebellious party has found itself wrapped up in a swirl of toxic briefings and talk of challengers to Sir Keir Starmer, who is himself floundering in the opinion polls.

Health Secretary Wes Streeting, the subject of the Downing Street leadership briefings that badly backfired on Labour and the PM this week, became the first Cabinet member to welcome the change of heart.

He told LBC radio yesterday: ‘I’m not in favour of breaking manifesto pledges. I think that trust in politics and politicians is low, and it’s part of our responsibility to not only rebuild our economy and rebuild our public services, but to rebuild trust in politics itself.’

Labour’s new Deputy Leader Lucy Powell was among the first to go public against the Chancellor’s plans when, more than a week ago, she warned: ‘It’s really important we stand by the promises that we were elected on and that we do what we said we would do.’

Having been put into her new post by the party membership, she was seen as speaking for a lot of the grassroots supporters and has promised to hold the party’s top brass to account.

The City was stunned on Friday as it emerged that Rachel Reeves (pictured) no longer plans to increase income tax in order to help balance the books

Former minister Catherine West then followed on Monday, saying: ‘If I were Rachel, I think I wouldn’t be breaking the manifesto promise.’

She believed doing so could be as catastrophic as the Liberal Democrats’ backtracking on their initial pledge not to increase university tuition fees, which led to a collapse in the party’s support at the 2015 election, adding: ‘I think those big ones, they do come back to haunt you.’

It prompted fresh claims that the Government’s economic policy is being driven by Left-wing backbenchers, after they forced Ms Reeves to abandon a proposed £5billion cut to disability benefits in the summer.

Economist and crossbench peer Lord O’Neill, who advised the Chancellor in Opposition, told BBC Radio 4’s World at One: ‘I’m a bit surprised and confused, but when I reflect on it, it is pretty hard to escape the conclusion that the change of mindset is being done because of the divisions inside the Labour Party.

‘Which one can sort of get, but if you’re trying to run a country with the tricky challenges that we have, I think you’ve got to be very careful to not send messages to financial markets that you’re going to put party consolidation ahead of fiscal credibility.

‘If they resort to tinkering at the edges with things that are politically easy for the party, but things that might damage growth further – such as just trying to somehow whack business because it sounds good to the Left-wing of the party – that isn’t going to go down well and just stores up more issues going forward.’

Sir Keir also needs all the support he can get now. Next May’s local elections had been mooted as the moment of most danger for him, but there has recently been talk that a badly-landing Budget could spark a more serious challenge to his leadership. 

Reform UK Deputy Leader Richard Tice told the Daily Mail last night: ‘This government only focuses on the whims of the Labour backbenches, not the British people. 

The Budget shambles continues, with every day bringing chaotic announcements and U-turns. The bond markets are rebelling and the voters are furious.’

But Government sources denied the decision had been a result of ‘political pressure’ and pointed out that the Chancellor would always seek to avoid breaking a manifesto pledge if the economic forecasts proved better than previously feared.