UK households have been warned that new taxes could fall on property, wealth and business, after an expert said Prime Minister Andy Burnham's pledge not to raise the "big three" taxes narrows the government's fiscal options.
Matthew Ryan, Head of Market Strategy at global financial services firm and foreign exchange specialists Ebury, said Chancellor of the Exchequer John Healey is a "generally safe pair of hands" but Labour is contending with a "core tension" as the party is "stuck between appeasing and winning back voters on the one hand, while keeping the bond market onside on the other".
Tax burden shift
Mr Burnham intends to stick to Labour's 2024 manifesto, which included a promise not to increase Income Tax, VAT and National Insurance. Mr Ryan said of the pledge: "If he honours such a pledge, it should lend some near-term credibility with markets. Yet it also narrows his fiscal options considerably, and could push the revenue-raising burden onto less politically salient areas such as property, wealth and business taxation."
Markets sceptical
On the currency markets, Mr Ryan said: "As we've been saying for a number of weeks now, we do not think that the pound is adequately pricing in the risk premium associated with the Burnham premiership."
He acknowledged some recent relief buying of UK assets "is somewhat justified", citing Mr Burnham's pledge to stick to fiscal rules and the appointment of Mr Healey rather than "say an Ed Miliband-type figure" as reassuring signals for markets. But he added: "We are sceptical that this will hold, however, given that Burnham's instincts point towards the type of tax, borrow and spend policies that investors have historically balked at."
Social care overhaul
Mr Burnham has left the door open for possible tax increases to fund a social care overhaul. He said: "I won't stand by and leave people paying the price for Westminster's refusal to deal with the real issues facing our country."
"That's what's happened with our broken social care system, which has been left to decline while politicians pass it back and forth."
"I just don't accept that this problem is too big to solve. What we need is a new way of doing politics where we come together, face the challenge head on and build an integrated system that gives people security and dignity."
"That's the commitment I am making to people across this country, and I will give it my all in trying."
