As boxer Mike Tyson famously said: “Everybody has a plan until they get punched in the face.”
Andy Burnham will find he has very little room for manoeuvre in the Budget (Image: Getty)
On Monday, Burnham and Chancellor John Healey had a plan. Today, they’re feeling a bit roughed up. The plan was courtesy of Labour donor Dale Vince, in time for Healey’s Budget on October 28. It involved hiking the frozen £12,570 personal allowance by £3,000. That would take it to £15,570 in April, roughly where it might have been if the freeze had never been introduced. It would have been massively popular.
This would save lower earners around £600 a year and be a blessing for pensioners too. It would remove any prospect of the state pension becoming taxable from April. I suggested that adopting it could even help sweep Andy Burnham to victory in a snap election in November. But I also warned there were problems.
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The move would cost around £20billion and I wasn’t convinced by Vince’s methods of raising it. He wants to push capital gains tax rates up to the same level as income tax bands, even though HMRC’s own modelling suggests this might actually reduce revenues rather than raise the £14billion Vince calculates. Vince also wants Healey to go in hard on the big banks.
Yesterday, the whole thing took a total battering. New government borrowing figures were released, and once again, they were absolutely horrible. They also landed at a terrible time for Healey. Public sector net borrowing soared £18.3billion in August, £3.5billion more than forecast.
Borrowing for the full financial year is now on course to hit £129billion, according to Pantheon Economics, well above the £115billion forecast by the Office for Budget Responsibility. Here’s the shocking bit. Thanks to Labour, we’re paying more tax than ever, but are still nowhere near balancing the books. Why? Because the government has lost control of spending. And it’s left Burnham and Healey in a deep fiscal hole.
Worse, the cost of servicing the debt is rising as inflation and gilt yields rocket. August debt interest hit a record £8.8billion. After today’s disastrous numbers, Healey’s fiscal headroom is gone. He may have to find another £15billion just to stand still. That makes the idea of funding a big hike to the personal allowance look almost impossible, unless Healey inflicts even more pain elsewhere.
On Monday, Burnham and Healey had the makings of a cunning plan. Increase the personal allowance, give millions of workers an unexpected tax cut, neutralise the looming state pension tax problem, then, if all that worked, go to the country with a snap election.
But they’ll be feeling groggy today, as the reality of Britain’s financial plight has just punched them in the face, Mike Tyson-style. Fnding £20billion to fund a £3,000 personal allowance increase look increasingly fanciful.
Obviously, this serves Labour right, for allowing Rachel Reeves to run loose with the nation’s finances. Unfortunately, it looks like taxpayers will now be punched in the face for the third Budget in a row, this time by Healey. What a mess. Burnham needs a new plan.