Amid heightened anticipation surrounding Andy Burnham’s imminent assumption of the role of Prime Minister, significant inquiries loom regarding tax implications under his leadership. Stepping in for Sir Keir Starmer, Burnham inherits an economy that outpaced all other G7 nations with a 0.6% growth in the first quarter of this year. However, a subsequent 0.1% decline in April was followed by marginal growth in May.
Concurrently, government borrowing continues to escalate, accompanied by staggering interest payments, while the nation’s public sector debt nears the £3 trillion mark. Burnham has indicated a commitment to Labour’s manifesto promise of no hikes in income tax, VAT, or national insurance. Nonetheless, these sources constitute approximately two-thirds of total tax revenue, limiting the options available to him and his Chancellor.
One area Burnham is keen to reform is business rates, proposing an increase in property taxes on warehouses to facilitate tax reductions for pubs and select high-street businesses. This proposed adjustment formed part of his successful campaign to become the MP for Makerfield.
Although increasing income tax may be off the table, attention is likely to focus on tax thresholds and bands. The freeze on thresholds has led to individuals facing higher taxes as their incomes rise, albeit generating substantial revenue for the Treasury. Burnham has criticized this freeze, emphasizing its impact on pensioners entering the tax bracket.
The “triple lock” pension guarantee, ensuring annual pension increases by inflation, earnings, or 2.5%, presents a costly commitment that policymakers have been reluctant to revise. Burnham has hinted at maintaining this pledge, acknowledging the importance of upholding manifesto promises. However, exploring changes to pension contributions, particularly for higher earners, remains a potential avenue for reform.
Capital gains tax (CGT), a levy on asset sale profits, generated an estimated £20.3 billion in the last fiscal year. Calls have emerged for aligning CGT rates with income tax levels, with suggestions to pair CGT reforms with income tax cuts for strategic benefits. Discussions around a potential wealth tax have gained traction, with Burnham indicating openness to exploring additional taxation avenues while emphasizing unity over division.
Property tax overhaul, including council tax and stamp duty reforms, has garnered attention for its complexity and the need for substantive changes. Burnham has expressed support for a land tax to replace existing property levies, acknowledging the necessity for reform amid widespread consensus among experts.
Notably, proposals to increase taxes on banks have surfaced, with debates on surcharges and their implications for banking profitability and competitiveness. Addressing tax gaps, where significant revenue goes uncollected, remains a challenge, particularly in combating tax avoidance and evasion prevalent among individuals and businesses. Efforts to enhance tax compliance, especially among small businesses, could yield substantial benefits for the Treasury, albeit requiring comprehensive strategies and time for implementation.
