Andy Burnham has been left with a £4.7 billion bill for Sir Keir Starmer's new defence investment plan (DIP), prompting warnings that taxes may need to rise. The new Labour MP for Makerfield is expected to become Prime Minister, but the fiscal challenge is significant.
Fiscal Rules and Tax Pledges
Lord O'Neill of Gatley, a former Goldman Sachs chief economist, said the next prime minister must not duck 'hard choices'. Bond markets are not yet flashing warning signs partly because the new chancellor is likely to abide by Chancellor Rachel Reeves' fiscal rules, which tie the government to stricter spending and borrowing plans. Burnham is widely expected to stick to the Labour manifesto pledge not to raise income tax, national insurance, or VAT.
Capital Gains Tax
Current capital gains tax (CGT) rates are below income tax bands of 20%, 40%, and 45%. Aligning CGT with income rates would target asset-rich Britons with property and equity portfolios. Potential new chancellor Wes Streeting says this could raise billions for infrastructure and defence. Richard Flax, chief investment officer at Moneyfarm, expects 'more of the same' from Burnham, noting taxes are already near record highs. 'We don't think that the new prime minister has a set of exciting new levers that he can pull to achieve faster growth. Tax increases are probably on the table, but we suspect that the economic modelling might show that the fiscal benefits of significantly higher taxes won't be compelling,' he said.
Bank Tax
Paul Nowak, general secretary of the Trades Union Congress, says Burnham could raise £9bn over four years simply by reversing the previous Conservative government's cut to the bank surcharge. A more radical move to impose a 35% surcharge on bank profits, matching the Conservatives' windfall tax on energy companies, could raise £60bn over four years, the TUC said. Lord O'Neill cautioned: 'We can't just keep avoiding what are seen as difficult choices and having backdoor ways of raising taxes. And we certainly shouldn't raise them on business.'
Gambling Tax
Burnham has condemned reports of adult gaming centres (AGCs) exploiting vulnerable people and called for tougher regulation. The Social Market Foundation (SMF) released polling showing 43% of the public would support higher taxes on AGCs, which offer £2 slot machine spins every 2.5 seconds. Doubling machine games duty (MGD) from 20% to 40% could increase tax take from Category B machines by between £275m and £458m, on top of the £600m they currently pay, according to the SMF.
Property Tax
According to The Times, Burnham is said to favour a proposal by the campaign group Fairer Share to replace stamp duty and council tax with an annual property tax equivalent to 0.48% of a home's value. This would mean a property tax of £1,440 on a house valued at £300,000.
Land Value Tax
Burnham has also explored stamp duty reform and wrote in The Guardian about replacing stamp duty on property sales with a land value tax. Any reforms could significantly affect moving costs and housing market activity.
Inheritance Tax
During his time as health secretary in 2009-10, Burnham advocated a flat 10% levy on all inheritance to fund social care. In 2023, he stated: 'I would abolish inheritance tax in its current form, but replace it with a care levy which everybody would pay – but obviously the wealthiest would pay the most.'
