Burnham ‘Plots Early Election to Seek Income Tax Rise Mandate

Andy Burnham is considering calling an early general election to secure public backing for tax increases, Labour sources have claimed, as concerns mount inside the Treasury over the worsening state of the public finances.

Chancellor John Healey is examining a range of potential tax rises aimed at wealthier households and businesses ahead of next month’s Budget.

The Treasury is seeking to raise an additional £10billion to £15billion. Measures under consideration reportedly include increases to capital gains tax and corporation tax, windfall levies on banks and oil companies, and an expansion of the mansion tax.

A straightforward increase in income tax is also being considered because it would be relatively simple to implement. However, that move would break Labour’s 2024 manifesto commitment.

As a result, the Prime Minister could seek a fresh mandate by calling an election within the next six months. That would allow him to raise income tax, VAT or National Insurance without being constrained by existing pledges. Mr Burnham inherited a parliamentary term from Sir Keir Starmer that is due to run until 2029.

Labour’s modest polling bounce since he entered No 10 in July could strengthen his position. An early vote would also give him an opportunity to capitalise on Nigel Farage’s difficulties over his party’s finances.

The Conservatives, meanwhile, are still in the process of rebuilding after their previous setbacks.

Yet fighting an election campaign centred on higher taxes would give rival parties an obvious line of attack.

The proposed tax increases are being explored after the Treasury’s so-called fiscal headroom—the surplus retained as protection against a future crisis—was estimated to have fallen from £23billion to only £5billion this year.

The deterioration has been driven by the rising cost of government borrowing, while the conflict in Iran has pushed up energy prices and inflation.

One source said: ‘They are having a meltdown in there [the Treasury].

‘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.’

Every 1p increase in income tax is estimated to raise approximately £7billion for the Treasury.

The source added: ‘Rachel [Reeves, Mr Healey’s predecessor] wanted to raise income tax to calm the markets, but it was deemed to be politically impossible’.

Among the ideas being assessed by Mr Healey is an exit tax for people seeking to move from the UK to a lower-tax country. The proposal would impose a 20 per cent charge on their business assets.

Those who remained in the UK could then face a super-rich tax, involving an annual 2 per cent levy on assets worth more than £10million. The measure would be modelled on the wealth tax that France retained until 2018.

France’s Impot de Solidarite sur la Fortune (ISF) was a progressive annual tax ranging from 0.5 per cent to 1.5 per cent. It applied once a French citizen’s net personal wealth exceeded €1.3million.

However, Treasury officials have cautioned that measures of this kind could ultimately reduce tax receipts, unlike a direct increase in income tax.

That is because tax avoidance techniques, such as moving your cash and home abroad or transferring money to children, eventually more than outweigh the original boost to government coffers.

As The Mail on Sunday revealed in July, Labour is also considering plans to extend the mansion tax to properties valued at more than £1.5million, in a move that would hit nearly 300,000 homes. 

Calling an election would be a bold gamble given the witches’ brew of cost pressures facing voters. 

Oil prices are more than $100 a barrel, there are four increases in interest rates expected by the middle of next year and the average energy bill is forecast to rise by 24 per cent in January to well over £2,000.

Mr Burnham has denied plans to call an early election, saying he will ‘work to the 2024 manifesto’.