The Office for Budget Responsibility (OBR) has warned that Andy Burnham's potential income tax plan could lead to two million people losing their jobs by 2075. The Labour MP for Makerfield, widely expected to become the next Prime Minister, recently hinted there is "room" to raise taxes under his premiership.
OBR warns of severe labour market impact
The OBR estimated that if future governments continue to freeze income tax thresholds, hiking them in line with prices rather than earnings, the labour supply could fall by around two million workers by 2075. This would also result in two-thirds of all workers—more than 20 million people—becoming higher-rate taxpayers within a few decades.
Rishi Sunak, the former Prime Minister, initially froze income tax thresholds until 2028. Current Chancellor Rachel Reeves, who is widely expected to be replaced by Ed Miliband under a Burnham premiership, extended the policy until the start of the next decade.
Painful consequences of sustained freeze
David Miles, an executive member of the OBR, said in a warning alongside the research: "It would be painful, because ... if you carry on doing that decade after decade, it isn't too far down the road until the great majority of people are higher rate taxpayers." This would impact people's "willingness to work, willingness to stay in the UK [and] to save, to pay taxes if income tax rates rose by that amount. So it's not a painless road to go down," he added. Miles also noted that the UK used to be a relatively low tax country compared to continental Europe.
Tom Josephs, an OBR official, warned: "It is certainly a substantial pressure on public spending over the longer term, and is making a very significant contribution to that upward pressure on spending."
Burnham's stance on tax
Speaking to LBC presenter Andrew Marr, Burnham defended his position, saying the finances in Greater Manchester had been "rock solid" during his tenure as mayor, and pointed to his previous experience as a Treasury minister in the last Labour government. "I stick by the manifesto and the promises that it made," Burnham said. "So, let me be absolutely clear about that, but there is some room within that manifesto for movement on tax."
The OBR analysis underscores the long-term economic risks of sustained tax threshold freezes, potentially affecting millions of workers and the UK's fiscal stability.
