Burnham Eyes Early Election Amid Treasury Deficit Concerns, Sources Say
The Prime Minister is reportedly considering an early general election to secure a mandate for potential income tax increases as the Treasury faces significant financial pressures.
Andy Burnham is reportedly considering an early general election to secure a mandate for potential income tax increases, according to Labour sources. The move comes amid what sources describe as a "meltdown" in the Treasury due to the deteriorating state of public finances.
Chancellor John Healey is examining various options for tax increases in the upcoming budget, aiming to raise an additional £10 billion to £15 billion. Potential measures include hikes to capital gains and corporation taxes, windfall taxes on banks and oil companies, and an extension of the mansion tax. However, raising income tax directly, which is favored by the Treasury for its simplicity, would breach Labour's 2024 manifesto.
An early election within the next six months could allow Prime Minister Burnham to bypass restrictions on income tax, VAT, or National Insurance increases. Burnham inherited a parliamentary term that extends until 2029 from Keir Starmer. The Labour party currently holds a lead in opinion polls, partly attributed to a post-election boost since Burnham took office in July. This timing could also capitalize on political challenges faced by Nigel Farage's party and the ongoing rebuilding efforts of the Conservative party.
However, campaigning on a platform of tax increases could provide opponents with a clear target. The need for such measures arises as the government's fiscal headroom, a buffer against future crises, has reportedly shrunk from £23 billion to £5 billion this year. This reduction is attributed to rising government borrowing costs and the impact of the Iran conflict on energy prices and inflation.
"They are having a meltdown in there [the Treasury]," one source stated. "The numbers are getting worse by the day. The markets like to see a '2' in front of the headroom figure, and that seems a long way off. And the easiest way to sort it is off the table." A 1p increase in income tax is estimated to generate approximately £7 billion for the Treasury. Rachel Reeves, Healey's predecessor, had reportedly favored increasing income tax to stabilize markets but deemed it politically unfeasible.
Among the tax measures being explored by Healey is an "exit tax" of 20 percent on business assets for individuals leaving the UK for countries with lower tax rates. Additionally, a super-rich tax is being considered, imposing a 2 percent annual levy on assets exceeding £10 million, similar to France's former wealth tax. However, Treasury officials have cautioned that such measures could reduce tax revenues in the long term due to tax avoidance strategies.
Reports from July also indicated that Labour was considering extending the mansion tax to properties valued above £1.5 million, which could affect nearly 300,000 homes. The prospect of an early election coincides with significant cost pressures for voters, including oil prices exceeding $100 a barrel, expected interest rate increases, and a projected 24 percent rise in average energy bills by January.
Prime Minister Burnham has publicly denied plans for an early election, stating his commitment to the "2024 manifesto."