Burnham Faces Calls to Adjust Tax Thresholds
New Prime Minister Andy Burnham is under pressure to increase two HMRC tax bands after taking office on Monday, succeeding Sir Keir Starmer. The Makerfield MP has promised to address the cost of living and is considering unfreezing the income tax threshold, according to reports.
The BBC's Faisal Islam reported that Burnham's camp has floated the idea of raising the basic rate threshold from £12,570 to £13,000, and the upper rate from £50,271 to £52,000. Islam stated, "I'm taking it pretty seriously that this may happen," noting that some have suggested not just unfreezing thresholds in 2027 but implementing these changes sooner.
VAT Cut on Energy Bills Confirmed
On Tuesday morning, Burnham confirmed a £45 tax cut for households by removing VAT from energy bills from October 1. However, Angeline Ong, Senior Technical Analyst at IG, described the measure as modest. "Reducing VAT from 5% to 0% equates to a saving of around £45 a year for the average household," she said. "Broken down, that's roughly £3.75 a month – unlikely to materially change the cost-of-living picture for most households."
Ong warned that wholesale energy prices remain elevated and the energy price cap is subject to regular revisions, meaning savings could be quickly eroded. She suggested that fuel duty cuts might offer a more meaningful economic boost, as the duty has been frozen at 52.95p per litre since 2022, with motorists paying 20% VAT on top of that duty.
Impact of Fuel Duty on Households
Ong highlighted that on a typical 55-litre tank, fuel duty amounts to around £29 before VAT is applied. "Reducing that burden would benefit not only households, but businesses, hauliers and commuters, helping to ease transport costs across the economy and potentially delivering a much broader boost to growth than a relatively small reduction in electricity bills," she added.
Burnham will chair his first Cabinet meeting today, with expectations of further announcements on tax and cost-of-living measures.
