Andy Burnham’s tax options

Today I’ve decided to look into my crystal ball to explore the tax options potentially available to Andy Burnham and his Chancellor John Healey, ahead of the budget scheduled for Wednesday 28th October.

Since moving into Number 10, Andy Burnham is clearly a man on a mission. The good news is that on first impressions, it appears that he might well be the man to inject a little bit of honesty into politics, especially on tax. For a start, he has appointed a Chancellor who quit his last job because the government wasn’t planning to spend enough on defence.

The prime minister has also been honest with regard to the NHS, admitting that it will face near collapse if the ever-rising costs of social care aren’t reined in. He also seems determined to ramp up housebuilding, whilst also combating rising inflation and the cost-of-living pressures on the general public.

Where will the money come from?

Anyone who has even a basic knowledge of finance recognises that there are only two ways of funding the additional sums needed for the various projects Burnham has stated as his priorities, assuming of course that he keeps to his promise of not borrowing the money. The options are to cut expenditure or to increase taxes.

After nearly 20 years of so-called austerity, the first option is clearly limited in scope and I have no doubt that greater government efficiency would be welcome news, but since multiple prime ministers in the last decade have failed to achieve this, including Kier Starmer, I suspect this source is effectively closed unless he takes on his backbenchers and slashes the welfare budget.

As we are constantly being told that the markets will not countenance significant additional borrowing, presumably that just leaves taxation. So, what options does this leave Messrs Burnham and Healey? As the PM has made being honest with the public a core principle, will he cast off the shackles imposed by Labour’s manifesto promises to freeze income tax, VAT and NIC rates,

It is already clear that our new dynamic duo must already have come to the conclusion that to achieve their goals, extra tax revenues are needed. It would be a refreshing change if they admitted this now, rather than pretend that they’ve got no intention to do so and then do it anyway in October.

What are the options?

There have been a plethora of rumours flying around recently, many from Burnham’s own backbenchers, aided and abetted by journalists and political commentators in speculation overdrive. So, what might happen? The possibilities are huge and for every winner there’s bound to be a loser.

As the prime minister has already discovered, unfreezing the personal allowance would be very expensive. If, however, he decided to reduce it further, whilst the measure would bring in bring in significant additional tax, it would also guarantee that Labour would lose the next general election.

Increasing income tax rates is apparently off the table, which is probably a sensible move based on the evidence from Scotland, who found that having increased the top rate of income tax to 48%, they did not see any significant rise in tax receipts. Extending the scope of VAT could be an option but may not bring in enough to override the complaints from those negatively affected. So what could they do?

The front runners

Amidst the waves of speculation, the rumour mill has thrown up a number of potential starters, the frontrunners being a wealth tax, import tariffs, windfall taxes and a land tax.

1. WEALTH TAX – The threat of a wealth tax has been hanging over rich people for many years but assessing and collecting it would be a difficult task for HMRC. But even with its associated problems, it might raise significant sums and is likely to prove to be politically acceptable. The two options currently being considered are to only tax billionaires or widen the scope to anyone with £10m+ of wealth.

2. TARIFFS – As many of our financial problems seem to derive from the actions of the US, perhaps we could learn a thing or two from the American president, for example by imposing heavy tariffs on countries from whom we import a great deal. This has the prospect of being the most acceptable to the general public.

3. WINDFALL TAXES – Perhaps the most palatable route to raise money is the imposition of windfall taxes on such industries as banking and energy companies, who will undoubtedly complain like mad but who cares?

4. LAND TAX – Some of the most interesting rumours in the Burnham era have surrounded property taxation. It appears that wants to ditch stamp duty and council tax and replace them with a land value tax or proportional property tax designed to tax the wealthy more and the poorer less.

5. OTHER POSSIBLES – For some time now, there has been talk on the prospect of equalising the rates of capital gains tax and income tax and this might be the moment when the bullet is finally bitten. Rejigging taxes or changing the inheritance rules might also come back under the microscope.

Why not ask the public?

As all of the options would be popular with some members of the public, but hated by others, perhaps the dynamic duo should address head on, the accusation that they don’t have a mandate to take such actions. So, to get around this point, perhaps they should consider the radical move of putting the choices to the people in a referendum.

There are a number of practicalities to consider, but in essence it would be a fair solution. The referendum could confirm that tax rises are needed and give the public a handful of choices and ask for an order of preference. The list would probably include say: Increase income tax rates/reduce thresholds, Windfall tax Unify CGT rates with income tax, Wealth tax, replace council tax and stamp duty with a Land Value Tax.

Also, for each option, brief examples showing the impact on individual taxpayers could be provided to help understanding. Such a radical move could well provide the answers to many of the questions that Messrs Burnham and Healey are currently wrestling with and they would be showing honesty about taxes.

Accountant’s view

Regrettably, despite some of the above ideas having potential, I strongly suspect that vested interests will torpedo most of the more radical suggestions, but as a ‘glass half full’ type of person, I live in hope that our new incumbents of Nos, 10 & 11 Downing Street will be radical and brave.