Rachel Reeves was sacked as chancellor in one of Andy Burnham’s first acts as prime minister, and the new occupant of No 10 has spent little time hinting at where the tax burden could change next: a potential income tax on low earners, no promise to save high earners from the 50p rate, and billions more borrowed for infrastructure.
Reeves, who appears unlikely to take another Cabinet job, has defended his record. “It has been an honor in my life to be Chancellor of the Domain,” he said. “The economy today is stronger, fairer and stronger because of the decisions we have taken as a Labor Government over the past two years.”
He continued: “I said that if I am appointed as Chancellor, I will judge my working time if high-level people are promoted.
“And to all young women and girls, let my time in office show that there should be no inclusion of your desires, your hopes or your dreams.”
His successor is yet to be confirmed, with No 11 runners and riders ranging from Wes Streeting to Ed Miliband. Anyone who gets a job will inherit a budget in a tray written by their new employer.
Burnham said he would look at cutting income tax for low earners in the Autumn Budget, removing the personal allowance, which has been frozen at £12,570 for the past five years, as a priority.
“I’ve heard stories about personal allowances more than anything on the doorstep at Makerfield,” he said, arguing that the snow had “pulled a lot of people”, pensioners among them, and “it’s a growing issue”.
He’s not wrong about drag. Last year’s HMRC figures showed that the pension freeze cost an additional 420,000 pensioners in income tax in one year. For employers, any meltdown would put more take-home pay in workers’ pockets without adding a penny to their paychecks, a rare Budget measure SMEs would be happy with.
The picture is not very comfortable on the income scale. Asked if he could raise the top rate of income tax from 45p to 50p, as he had previously proposed, Burnham refused to rule it out. “I think that would be too early to say that. I haven’t even got my feet under the table yet,” he said.
That ambiguity leaves high-earning owner-directors guessing until the autumn, and sits alongside his previous promise of a 20 per cent cut in business rates for low-cost and high-street firms, funded by higher levies on online retail stores. The direction of travel is clear: ease the floor, and the bill is sent elsewhere.
As for borrowing, Burnham said he would use “any flexibility” in the government’s financial rules to support infrastructure investment. Experts say that the change in the definition of public debt can free up an additional £ 16 billion, because the National Wealth Fund and other institutions can now lend or participate in companies without affecting the purpose of the debt.
“I said we will adhere to the financial laws and by that I mean the existing financial laws and we will clearly use any flexibility within them,” he said. “But we’re going to stick to the rules and I’ve made that clear to Downing Street. So none of this is about putting the economy at risk. I’ve never done that in any role I’ve had.”
For construction, engineering and supply-chain SMEs, the £16 billion infrastructure spend is a pipeline to watch. To everyone, the message from the new prime minister is to look closely at the Autumn Budget, and perhaps at the 50p rate he has clearly refused to bury it.
