Andy Burnham may have hit on an election winning tax move (Image: Getty)
Now Burnham is considering how to use the first to win the second. Healey will deliver the Budget on October 28 and he’s been desperate to keep the lid on speculation. But the PM and chancellor are reportedly running the rule over a Budget submission from millionaire Labour donor Dale Vince, founder of green energy firm Ecotricity. Vince wants Healey to hike two key taxes, then use the money to fund a tax cut that might just turn out to be an election winner.
A tax cut from Andy Burnham? Seriously? So far, all this Labour government has done is hike. As well as driving up spending, welfare, the national debt and borrowing costs. Experts expect Burnham to deliver “another socialist tax and spend Budget”, but this new plan would be a striking change of direction. And it could put hundreds of pounds a year into the pockets of the lowest earners. But first, let’s look at how Healey would pay for it.
Vince wants to axe the interest the Bank of England pays commercial banks on the reserves they hold with it. It hands the big banks up to £40billion a year. Many have attacked this, including Reform UK’s Nigel Farage. Why should taxpayers hand banks billions? But this isn’t simply free money being handed to the banks. Paying interest on reserves is part of how the Bank controls interest rates. Scrap it and another mechanism would be needed. Burnham may decide that’s worth it.
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The second big proposal does involve, with grim inevitability, a tax hike. In this case, to capital gains tax. CGT is charged when people sell assets such as shares held outside an ISA, second homes, antiques, cryptocurrency and businesses. Today, basic rate taxpayers pay 18% while the better off pay 24%.
Labour politicians, including Burnham backer Louise Haigh, have argued for bringing CGT rates closer to income tax, by hiking upper CGT rates to 40% and 45%.
Vince’s submission claims it could raise £14billion. Again, there’s a catch. When HMRC modelled a CGT hike, it found a 10 percentage-point increase in the higher rate could actually cut the amount collected by £3.6billion a year by 2029, as people hold onto assets rather than sell them.
There’s another danger. Hit successful businesses and entrepreneurs too heavily and Britain risks making itself an even less attractive place to invest, build companies and create wealth. It’s already struggling on that front, thanks to Rachel Reeves‘s raids and the growing demonisation of wealth and success.
Burnham might go for it anyway. Why? Because it gives him the opportunity to do something so popular that it could pave the way for a snap election victory. The personal allowance has been frozen at £12,570 since 2022 and thanks to Reeves, it’s due to stay there until 2031. Now there are reports that Burnham and Healey would like to hike that by a stunning £3,000 from April 2027, lifting it to £15,570.
That would cost around £20billion but could save the lowest fifth of earners £600 a year. That’s money they would mostly spend, boosting the everyday economy. There’s another advantage. It would also deal with a looming state pension problem. The new state pension is set to rise above the £12,570 personal allowance next year, dragging even more pensioners into income tax. Problem solved.
So there you have it. A tax raid on bank reserves and capital gains, funding a huge tax cut for working people.
It’s a radical proposition and one that could put a tax break, rather than yet another tax rise, at the centre of the October 28 Budget. If Burnham followed up with a snap November election, there’s a chance he could get the mandate he dreams of.
It might just be the nightmare scenario for Kemi Badenoch and Nigel Farage. And in the longer run, taxpayers. With Labour in power for another five years, the tax hikes will surely start rolling along. Only this time, Burnham would have his mandate for them.
Andy Burnham has a cunning Budget plan – and it could sweep him to snap election victory
Andy Burnham’s first Budget as Prime Minister is rapidly becoming the centre of Britain’s political debate.
With Chancellor John Healey preparing to deliver the government’s autumn Budget on October 28, attention has increasingly focused on whether Labour can produce measures capable of easing pressure on households while maintaining control of the public finances.
One proposal reported in recent days is particularly striking.
According to a report published by AOL based on a submission from millionaire Labour donor Dale Vince, the government has been examining the possibility of increasing the income-tax personal allowance while raising revenue elsewhere. The reported proposal would increase the allowance from £12,570 to £15,570, potentially giving lower-paid workers a substantial reduction in their tax bills.
It is important to stress that this is not an announced government policy.
Nor is there evidence that Burnham has decided to call a snap election after the Budget.
In fact, Burnham has repeatedly said the opposite.
On September 25, he explicitly rejected speculation about an early general election, saying: “All this speculation of an early election, I can knock that dead.” He told broadcasters that the next election would be in 2029 and said his priority was delivering his programme rather than calling an election.
Nevertheless, the reported tax proposal provides an intriguing insight into the political choices facing the new government.
The £3,000 personal allowance proposal
The personal allowance is the amount of income an individual can receive before paying income tax.
It has been frozen at £12,570 for several years.
The reported proposal would raise it by £3,000 to £15,570 from April 2027.
According to the proposal described by AOL, the measure could cost around £20 billion but potentially save households in the lowest fifth of the income distribution about £600 a year.
Such a change would be politically significant because it would allow Labour to present a Budget containing a visible tax reduction rather than focusing exclusively on tax increases.
For Burnham, that distinction could matter.
His government has inherited substantial spending pressures and limited fiscal room. At the same time, the Prime Minister has promised to improve household finances, strengthen public services and invest in housing, social care and infrastructure.
The central question is therefore straightforward:
How does the government pay for its ambitions?
The money has to come from somewhere
The proposal attributed to Vince involves increasing taxation elsewhere, including capital gains tax.
Capital gains tax applies to profits made from selling certain assets, including shares outside tax-advantaged accounts, second homes and some business assets.
The reported proposal suggests increasing capital gains tax rates while using some of the proceeds to finance a larger income-tax allowance.
That would create an important political trade-off.
Lower-paid workers could receive a direct tax benefit, while people with substantial capital gains could face higher taxation.
However, estimates of how much additional revenue higher capital gains tax rates would actually produce are uncertain.
Behaviour matters.
If tax rates rise sharply, some people may delay selling assets, restructure investments or change their financial arrangements. That can reduce the amount of revenue ultimately collected.
This is one reason why headline estimates of tax receipts should not automatically be treated as guaranteed government income.
The Bank of England reserves question
The other element of the reported proposal concerns the interest paid by the Bank of England on commercial-bank reserves.
Dale Vince has reportedly argued for changing the way this system operates, potentially freeing resources that could be used elsewhere.
This is a complicated area of monetary policy.
Commercial banks hold reserves at the Bank of England, and the interest paid on those reserves is part of the framework through which the Bank implements monetary policy.
Simply eliminating the payments would therefore not amount to discovering a pot of completely free money.
A different mechanism would be required to implement monetary policy.
That distinction is important because the proposal has sometimes been presented politically as though the government could simply take billions from banks without wider consequences.
The reality is more complicated.
Why the Budget matters so much
Healey’s Budget comes at a difficult moment for the public finances.
Government borrowing in August reached £18.3 billion, significantly above the £15.5 billion forecast. Borrowing during the first five months of the financial year reached £77.3 billion, £8.1 billion above the Office for Budget Responsibility’s forecast.
Reuters reported that higher borrowing costs and other pressures had reduced the government’s fiscal headroom from approximately £24 billion in March to around £10 billion.
That sharply limits the Chancellor’s room for manoeuvre.
The government has also promised significant spending in areas including housing, social care and defence.
At the same time, Burnham has pledged not to raise several major taxes.
That combination leaves Healey with difficult choices.
The government could raise other taxes.
It could reduce or delay spending.
It could alter thresholds and allowances.
It could borrow more, although that would have to remain compatible with the government’s fiscal rules.
Or it could combine several approaches.
A Budget designed for households
The political attraction of raising the personal allowance is obvious.
Tax thresholds can be complicated.
A change to the personal allowance, however, is relatively easy to explain.
A worker earning above the allowance could see a straightforward reduction in the amount of income subject to tax.
That creates a tangible message for the government:
working people keep more of their wages.
Such a measure would also fit with Burnham’s wider political emphasis on household finances.
Since entering Downing Street in July, the Prime Minister has placed domestic economic issues at the centre of his agenda. Reuters reported in August that his government had focused on measures intended to give households “some breathing space” while preparing a broader programme for the country.
The government’s official description of the October Budget is similarly focused on fiscal discipline, stability and moving money and power away from Westminster.
The challenge is making those ambitions fit within the financial constraints.
The election speculation
This is where the Budget becomes politically sensitive.
For several weeks, Westminster speculation has centred on whether Burnham could use a strong economic package as the foundation for an early election campaign.
That speculation intensified after Labour’s support improved in some recent polling and after Reform UK experienced several controversies.
The appointment of economist Ravinder Athwal as a senior adviser to Healey has added another talking point. Athwal previously worked on Labour’s 2024 manifesto and was brought into the Treasury team ahead of the Budget. The Guardian reported that his appointment had fuelled speculation about election preparations.
But there is a crucial difference between preparing for an election and planning to call one.
All major political parties have to maintain election readiness.
And Burnham has now made his public position unusually clear.
He says there will not be a snap election before 2029.
Burnham’s explicit rejection
On September 25, Burnham was asked repeatedly about the possibility of an early election.
Initially he said he was “not particularly” tempted.
Later, he became much more categorical.
He said he was “not going to do that” and argued that voters wanted him to concentrate on delivering the policies for which his government had been elected rather than putting “self-serving politics” first.
That statement makes any suggestion that the October Budget is secretly designed to trigger an immediate election speculative.
The reported tax strategy could still have political consequences, of course.
A government does not need to call an election immediately for a Budget to shape its electoral position.
A policy that increases disposable income for millions of households could affect how voters assess the government over the following years.
Conversely, tax increases affecting investors, businesses or higher-income households could generate criticism.
The Budget will therefore have consequences regardless of whether an election is called.
The pension complication
There is another reason the personal allowance issue is significant.
The new state pension is expected to rise above the current personal allowance threshold.
If the threshold remains frozen, more pensioners could potentially find themselves paying income tax on their pension income.
Raising the allowance could therefore have implications beyond working-age taxpayers.
But it would also be expensive.
Every £1 increase in the allowance reduces the amount of income subject to tax for eligible taxpayers.
A £3,000 increase would consequently represent a major fiscal decision.
That is why the proposal cannot be assessed simply by looking at the potential benefit to households.
The Treasury would have to calculate the full cost and consider how the measure interacts with other tax and benefit policies.
The political calculation
For Burnham and Healey, the fundamental problem is balancing three objectives.
The first is economic credibility.
The government has promised to follow fiscal rules, and the borrowing figures have made that task harder.
The second is visible help for households.
After years of pressure on household finances, ministers want policies that voters can actually feel.
The third is long-term public investment.
Burnham has promised major changes in housing, social care, public services and the structure of government.
Those ambitions require money.
A higher personal allowance could therefore be attractive because it offers a clear benefit, but it simultaneously reduces tax revenue.
That means the government would have to find savings or additional revenue elsewhere.
Not quite the “election-winning” plan claimed
The phrase “election-winning” should therefore be treated carefully.
There is no reliable way to establish in advance whether a particular Budget measure would produce an election victory.
Political outcomes depend on many factors, including economic conditions, public opinion, opposition parties, events and the government’s record over time.
Indeed, Burnham has explicitly rejected the premise that he is preparing for an imminent election.
The reported proposal is better understood as one possible attempt to reconcile competing economic and political objectives.
If the government increased the personal allowance, it could provide a direct benefit to taxpayers.
If it simultaneously increased taxes on capital gains or changed the treatment of bank reserves, it could attempt to offset part of the cost.
But each element carries economic and political risks.
October 28 will provide the test
The government’s official Budget date is October 28.
Until Healey stands at the despatch box, many of the reported measures remain proposals, submissions or speculation.
The Treasury will have to work within a much tighter fiscal environment than the government might have hoped when Burnham entered Downing Street in July.
The reported personal-allowance plan therefore deserves attention, but not because it proves that Burnham has secretly decided to call an election.
Its significance lies elsewhere.
It illustrates the central dilemma facing the new government: how to offer voters meaningful financial relief while funding an ambitious programme and maintaining confidence in Britain’s public finances.
Burnham has said he wants to govern rather than campaign.
The Budget will show how he intends to do that.
And if the government really does choose to put a substantial tax cut for ordinary earners at the centre of its economic strategy, the political impact could be considerable — even without the snap election that Westminster speculation has repeatedly predicted.
For now, however, Burnham’s own position is clear.
The next general election, he says, is in 2029.
The October Budget is therefore less a launchpad for an immediate election than a crucial test of whether his government can turn its promises into a financially credible programme.