Amid high anticipation surrounding Andy Burnham potentially becoming the Prime Minister soon, there are significant concerns regarding tax implications and how individuals may be affected during his leadership.
Taking the reins from Sir Keir Starmer, Burnham steps into a challenging economic scenario, with the UK’s economy showcasing rapid growth compared to other G7 nations in the first quarter of this year. While the economy saw a 0.6% growth, it experienced a slight drop of 0.1% in April, followed by a marginal upturn in May.
On the financial front, government borrowing continues to escalate, accompanied by substantial interest expenses, propelling the national public sector debt towards the £3 trillion milestone.
Burnham has indicated his adherence to the Labour Party’s commitment outlined in their manifesto, vowing not to escalate income tax, VAT, or national insurance. However, these taxes contribute significantly to total tax receipts, limiting the flexibility for Burnham and his Chancellor in implementing changes. The finer details of any tax adjustments may have to wait until the autumn Budget, but potential options are being speculated.
One tax reform Burnham appears keen on is altering business rates. In a recent interview with LBC, he proposed increasing property taxes on warehouses to fund tax reductions for pubs and select high-street businesses. This proposal was a key aspect of his successful campaign to secure the Makerfield MP seat.
His plan entails a 20% rate cut for pubs, clubs, and music venues, while smaller independent entities in the hospitality, leisure, and retail sectors may witness an elevation in the threshold for paying business rates, a move not seen since 2017. This adjustment would be funded through higher rates imposed on large warehouses run by online giants like Amazon and targeting owners of vacant high street properties.
Although raising income tax seems unlikely, the focus may shift towards revising tax thresholds and bands to align with income increments. Freezing these thresholds has led to individuals facing higher tax burdens as their incomes rise, although it has been a lucrative strategy for the Treasury.
Concerns have also been raised about the “triple lock” pension guarantee, which ensures an annual rise in state pensions by inflation, average earnings, or 2.5%, whichever is higher. Burnham seems inclined to maintain this commitment, emphasizing the importance of upholding manifesto promises. He could explore adjustments to pension contributions, particularly for higher earners.
Capital gains tax (CGT), generating substantial revenue, has drawn attention for potential reforms. Suggestions to align CGT rates with income tax or bundling CGT modifications with income tax cuts have been put forth for consideration.
Advocates for a wealth tax have found support in Burnham’s recent statements, hinting at a possible need for additional taxation. However, the practical implementation and effectiveness of a wealth tax, particularly in accumulating funds from affluent individuals, remain subject to debate.
Efforts to reform property tax systems, including council tax and stamp duty, have garnered attention. Proposals for a proportional property tax based on property value or a land tax to replace existing property levies have been discussed, with potential repercussions on property owners in different regions.
Calls to impose heavier taxes on big banks due to increased profits have surfaced. Suggestions to reevaluate bank surcharges or alter interest payments on bank reserves have been proposed, aiming to address social concerns such as energy bill reductions for low to middle-income households.
Despite significant tax revenues collected by HMRC, a substantial tax gap persists, amounting to billions in uncollected funds from individuals and businesses. Addressing tax evasion, avoidance, and errors could prove financially beneficial but requires intricate strategies and time for effective implementation.