New Prime Minister Andy Burnham has indicated he is prepared to increase borrowing and target high earners with tax rises in order to raise the personal allowance threshold. Speaking shortly after entering Downing Street, Burnham acknowledged that the five-year freeze on the tax-free allowance at £12,500 had become a significant issue, particularly for pensioners and low-income groups.
Burnham's Pledge on Fiscal Rules
When asked whether he would borrow more to fund an increase in the personal allowance, Burnham stated: “I think you've jumped ahead a bit there because I've said we'll stick to the fiscal rules and by that I mean the existing fiscal rules and use obviously any flexibility within them. But we will stick to the existing rules, and I've made that very clear in Downing Street. So none of this is about taking risks with the economy.” He emphasised his prudent approach and promised that any changes would be fully funded and outlined in the upcoming Budget.
Potential 50p Top Rate of Tax
Burnham refused to rule out reintroducing a 50p top rate of income tax, but said it would be “premature” to confirm such a move. “I’ve barely got my feet under the table,” he remarked. The International Monetary Fund (IMF) has previously warned that a tax raid on high earners could backfire, costing the Treasury billions. The IMF noted that Britain's highest earners already face some of the toughest marginal tax rates in the G7, with taxes on every extra pound earned averaging 60%, compared to less than 40% in the US and Japan.
Cost-of-Living Measures
The Prime Minister also pledged to introduce measures on Tuesday to alleviate the rising cost of living, though he declined to provide specifics. “We are looking at measures that could make a difference this year. We will make more announcements tomorrow. We just want to do some things that people will feel and feel quite quickly,” he said. The Labour leader added that while these steps would not solve everything, they would demonstrate the government's commitment to helping households.
Record Income Tax Payers
HMRC expects a record 40 million Britons to pay income tax this year for the first time, with nine million people now paying the higher or additional rates of 40p or 45p – almost double the number a decade ago. The IMF has cautioned that Britain is near the limit of how much it can tax workers without harming economic growth.
