Andy Burnham’s Spending Spree Makes Tax Rises Inevitable

Andy Burnham spent the month having won Makerfield constructing the fiscal equivalent of an all-inclusive resort. Just days into the job of prime minister, the giveaways have officially begun, with an extra £340 million committed to slash rough sleeping and the government cutting VAT on domestic electricity bills from 5 per cent to zero for six months.

These are just the welcome drinks of Burnham’s ambitions. Before taking office, Burnham floated lifting the £12,570 income-tax personal allowance. He wants social care free at the point of use. He has promised to preserve the state pension triple lock, honour a defence plan with £4.7 billion of funding still unidentified, and move military spending towards 3 per cent of GDP. Add a big council-house building programme, lower business rates for hospitality, more youth and mental health support, “Buy British” procurement, stronger public control of “life’s essentials”, plus ideas for relief on bus fares and rents, and you’re talking real money.

An all-inclusive holiday, of course, must be paid for. Burnham says he will stick to Labour’s fiscal rules, “never take risks,” and honour the Labour manifesto pledge not to raise taxes on working people. He says existing budgets should be “reprioritised”.

Yet few in his cabinet of former councillors, Labour staffers and charity and union employees will have entered politics to cut programmes. What we should rationally expect is therefore tax rises. And if he gets anywhere near delivering on his spending promises, these will be large.

Rain Newton-Smith of the CBI has warned against a “summer of speculation” in which ministers say, “we might increase this tax or maybe we won’t”. She’s right that the expectation of levies chills economic activity today. When a post-tax return becomes murkier, waiting becomes valuable. The Bank of England has previously found firms citing budget uncertainty as a reason to delay investment, avoid borrowing and freeze hiring.

Unfortunately, keeping your specific tax plans top-secret cannot escape all these effects. A parade of spending commitments, combined with vows of fiscal purity, is itself a signal. Businesses remember pre-budget periods under Keir Starmer, when hints were followed by large tax-raising packages. With no costed promises, the private sector will naturally assign a higher probability to squeezes on their profits, payrolls, gains, property or income.

That guessing has already begun. Last September Burnham said there was “definitely a case” for restoring the 50p income-tax rate and called council tax bills on some multimillion-pound homes a “huge underpayment”. This May he said land was undertaxed. In 2010 he proposed a progressive levy on all estates to finance a national care service. Last week he said some people might pay “a little more”, fuelling fresh speculation over capital-gains hikes and wealth taxes before he’s endorsed either.

The large sums involved in his plans will mean this guessing continues. Raising the personal allowance by only £500 could alone cost about £5 billion annually. Universal free social care has been estimated at up to £18 billion and growing, given population ageing. Chancellor John Healey arrives with both a military shopping list and an existing funding gap. Public ownership and bill relief add further liabilities onto the government balance sheet.

There is no clever fiscal escape hatch. A “preventive state” may promise savings tomorrow, but the Treasury can’t pay this year’s carers with projected welfare savings in 2032. Nor can ministers manufacture fiscal space by relabelling current spending as investment with gilt markets already twitchy about borrowing levels. Scrutiny on fiscal tricks will only intensify after former cabinet minister Darren Jones noted that the VAT cut is supposedly financed by scrapping a digital ID programme that was itself unfunded.

No, until Healey’s autumn budget reveals who pays, firms, high earners and homeowners will delay activity or rearrange their affairs. The economic consequences of the expected tax rises will arrive well before the Treasury collects a penny.