Whoever takes office, their inheritance from the Starmer administration will include a £4.7bn gap in funding for the Defence Investment Plan (DIP). And that’s after sacrificing various road upgrade and infrastructure projects to get the DIP out of the door before the NATO summit next week. The new administration will therefore be faced with the same ‘difficult choices’ as Starmer and will likely look for tax rises to fund at least part of the gap.
Timing
A lot could happen between now and a Burnham Budget. For context, it’s worth thinking about when that Budget might happen. The earliest that Burnham could take office is 17th July, assuming no other contenders emerge. Whoever is named as Chancellor must give the Office for Budget Responsibility a minimum of ten weeks to prepare their forecasts. So allowing a couple of weeks for the new administration to draw up a fiscal plan, that takes us through to late October at the earliest. There is therefore still time for the rest of us to plan.
We know that our clients are starting to think about how they may be impacted by a new government. Although there’s a lot we don’t know with certainty, including the identity of our next Prime Minister, we are sharing below what we can glean about the fiscal policies of current front runner Andy Burnham.
What has Andy Burnham said about tax?
Very little on direct tax so far. His 29th June speech gave no commitments on tax, so we need to look to earlier statements for clues to his fiscal policies. He is, however, on record as saying that he’ll stick to the 2024 manifesto pledge of no income tax, NIC or VAT rises, which means that, like Rachel Reeves, he and his Chancellor will be looking at other taxes to make up any deficits.
Capital gains tax (CGT)
Burnham is understood to favour the equalisation of CGT and income tax rates. There are two main problems with that. Firstly, if people perceive the CGT rate as excessive, they simply hold onto assets, strangling the property market in particular. The second is that, unless some inflation adjustment is built into the calculation, much of the gain being taxed is down to inflation. Nigel Lawson’s equalisation of rates was ultimately repealed as it failed to raise significant additional revenue.
Another possibility is introduction of an exit CGT, so that those emigrating pay tax on the gains that they’ve made whilst UK resident. Some countries do this. Arguably it’s an ‘easy win’ which would affect those leaving the UK rather than most voters, but it might discourage the wealthy from coming to the UK in the first place.
Any hike in CGT rates is most likely to affect those holding assets like property and shares, although those trying to sell a business could also find themselves paying more. CGT hikes usually take effect from Budget day, so earlier disposals are taxed under the current regime.
Council tax and Stamp Duty Land Tax (SDLT)
Burnham is amongst the many who regard council tax as ‘regressive’. It is still based on 1991 valuations and creates anomalies like the semi in Blackpool that pays more council tax than a Mayfair mansion. It’s argued that a ‘land value tax’, based on the annual rental market value, would be fairer and potentially allow for the abolition of SDLT. Most people would need to pay more if the proposal is to succeed.
Taxing land should be relatively easy given that it doesn’t move, but it does still need to be valued, which would be a major cost headwind before the government saw any of the increased revenue. It’s also unclear how such a tax would interact with the ‘mansion tax’ proposed by Rachel Reeves, affecting those with properties valued at over £2m and due to take effect from 2028.
Anyone moving house will understand that SDLT has become a major cost, so abolition would smooth the process for land transactions and potentially ease social and economic mobility.
Inheritance and wealth taxes
Burnham has observed that wealth is taxed more lightly than labour in the UK. When last in government he proposed a 10% social care levy on all estates to fund a national care service. More recently he has proposed scrapping IHT alongside a social care levy, which would significantly broaden the tax base. Whilst this could be a win for the wealthy, Burnham’s by-election campaign message was that ‘obviously the wealthy would pay most’ and the devil will be in the detailed numbers. Celebration would be premature.
As yet there has been no wealth tax proposal from Burnham as such, although the land value tax would to some extent tick that box. The press has reported that he is willing to ‘look again’ at IHT agricultural relief for farmers. It’s not clear whether that would also extend to businesses.
Business taxes
The one mention of tax in Burnham’s 29th June speech was the review of business rates to support physical businesses – pubs and high street retail – which would be welcomed.
If he is to stick to the 2024 manifesto, then that would rule out increases in corporation tax.
Action now?
Given that Andy Burnham is, at the time of writing, merely a backbench MP, it is premature to develop a strategy for dealing with his tax policies. Our approach is that clients should do what is consistent with their goals and objectives, and avoid taking any action which they would not be considering but for tax change rumours. It will be good to keep that policy in mind over the next weeks and months as the inevitable summer of speculation on the new administration’s tax policies dominates the headlines.
Clare Munro is our Senior Tax Adviser. Within her day-to-day role, she provides tax advice to high-net-worth clients in relation to their banking and wealth management needs. With a particular interest in inheritance tax and capital gains tax planning, Clare helps clients to structure their wealth tax efficiently to preserve it through family generations.
What you need to know
Tax laws may change and taxation will vary depending on your own personal circumstances.
Investments can go up and down in value and you may not get back the full amount you invest.