Andy Burnham is plotting an early general election to raise taxes amid a ‘meltdown’ in the Treasury over the deteriorating state of the public finances, Labour sources have said.
Chancellor John Healey is stress-testing a series of options for soak-the-rich tax rises in next month’s Budget.
He needs to raise an extra £10-15billion, which includes possible increases to capital gains and corporation taxes, windfall taxes on banks and oil companies, and an extension of the mansion tax.
But the direct option of increasing income tax, favoured by the Treasury because of its simplicity, would breach Labour’s 2024 manifesto.
It means the Prime Minister could call an election within the next six months to win a fresh mandate to govern – without having his hands tied on income tax, VAT or National Insurance. Mr Burnham inherited a parliamentary term from Sir Keir Starmer which runs until 2029.
With Labour ahead in the polls, as a result of the modest ‘bounce’ in support for the party since he entered No 10 in July, he would also be able to take advantage of Nigel Farage‘s political problems over his party’s finances.
It would also exploit the fact that the Tories are still rebuilding.
However, running an election campaign on a tax-raising ticket would present an obvious target for his opponents.
The new prime minister is said to be plotting an early general election to raise taxes amid a ‘meltdown’ in the Treasury over the deteriorating state of the public finances
Chancellor John Healey, meanwhile, is stress-testing a series of options for soak-the-rich tax rises in next month’s Budget
The tax rises are being prepared because the so-called ‘fiscal headroom’ – the surplus on the Treasury’s books which is kept as insurance against a future crisis – is calculated to have shrunk from £23billion to just £5billion this year.
That is because of the soaring cost of government borrowing and the Iran conflict pushing up energy prices and inflation.
A 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.’
Each 1p rise in income tax brings in about £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 measures being considered by Mr Healey is an ‘exit tax’ on anyone trying to flee the UK to a country with lower taxes by charging 20 per cent on their business assets.
Once trapped here, they could then be hit with a super-rich tax which would impose a 2 per cent annual levy on assets valued above £10million, modelled on the wealth tax which applied in France until 2018.
The Impot de Solidarite sur la Fortune (ISF) was an annual progressive tax, with rates from 0.5 per cent to 1.5 per cent, which was triggered when a French citizen’s net personal wealth was greater than €1.3million.
But Treasury officials have warned that, unlike income tax, such measures reduce tax revenues further down the line.
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’.
Andy Burnham, Early Election Rumours and the Treasury Tax Debate
Britain’s new Labour government is facing an increasingly difficult economic and political test as Prime Minister Andy Burnham prepares for the autumn Budget. Reports that his government may consider an early general election have appeared alongside claims of serious concern inside the Treasury about the country’s deteriorating fiscal position. At the same time, ministers are examining possible tax increases, including changes to capital gains tax, corporation tax and property taxation.
The combination of these developments has created a highly sensitive political atmosphere. However, it is important to distinguish between confirmed government policy, proposals under consideration and media reports about private discussions. In particular, claims that Burnham is actively “plotting” an early election have not been established as government policy. In fact, Burnham has publicly rejected the prospect of a snap election. The financial pressures facing his government, however, are real and have become one of the central issues of his premiership.
According to recent reports, the Treasury is examining ways to raise additional revenue before Chancellor John Healey delivers the Budget on October 28. The Financial Times has reported that the government is confronting rising borrowing costs, higher energy prices and a shrinking fiscal buffer. These pressures have made it more difficult for the government to fulfil ambitious spending commitments while maintaining confidence in financial markets.
The scale of the challenge has also been highlighted by Reuters. In September, Burnham said his government would be prepared to make difficult decisions to keep the economy on track. Inflation had risen to 3.1 per cent in August, while long-term government borrowing costs had reached levels not seen for many years. The combination of inflation and expensive borrowing limits the room available for large new spending programmes.
Against this background, taxation has become a particularly important issue. Burnham has previously indicated that Britain may need to raise additional revenue to deal with long-term pressures such as an ageing population, defence spending and investment. Reuters reported in July that his government was considering several possible tax reforms, while also remaining committed to Labour’s 2024 manifesto pledges not to increase income tax, National Insurance or VAT.
One of the most closely watched areas is capital gains tax. Recent reporting suggests that ministers are examining a possible increase in the tax paid on profits from the sale of assets. The Times reported that one proposal could raise capital gains tax rates substantially and use some of the revenue to increase the income-tax personal allowance. The proposal has reportedly attracted support from some Labour figures, although the Treasury has not confirmed that such a policy will be included in the Budget.
The argument behind such a reform is relatively straightforward. Supporters contend that income from wealth and assets can be taxed at lower rates than income from employment, creating what they regard as an imbalance in the tax system. Critics, meanwhile, argue that substantially higher capital gains taxes could discourage investment and potentially reduce the amount of revenue collected over time. These are competing economic arguments rather than settled facts, and the eventual effects would depend heavily on the details of any legislation.
Property taxation is another area where Burnham has previously expressed interest in reform. The House of Commons Library noted that he has spoken favourably about reforming council tax and has expressed support for greater taxation of land and property. However, the same briefing makes clear that many of the more ambitious proposals discussed in the media have not become government policy. In July, the Prime Minister ruled out replacing council tax altogether.
The question of an early election adds another layer of uncertainty. Some reports have suggested that Labour figures are considering whether an election held earlier than originally expected could provide a political mandate for difficult economic decisions. The Daily Mail has reported claims of discussions surrounding an election and described the situation inside the Treasury in dramatic terms. However, these reports are based partly on unnamed political sources and should therefore be treated as allegations rather than established facts.
Other reporting provides a more cautious picture. The Irish Times recently reported that rumours of an early election have circulated within Labour circles, but also quoted a Labour source suggesting that an election in the immediate future was not being seriously contemplated. The same report noted that the timing of a future election could theoretically become relevant to the government’s calculations, particularly as opposition parties strengthen their campaign resources.
Most importantly, Burnham himself has publicly ruled out a snap election. The Financial Times reported earlier this month that he rejected the prospect of calling an early general election while acknowledging that Britain faced a difficult financial outlook. He stressed the importance of economic stability and said the government would avoid actions that could undermine confidence or push up borrowing costs.
This public position is significant because an early election would involve considerable political and economic risks. A government seeking a fresh mandate for tax increases would need to explain clearly why those increases were necessary and how the money would be used. At the same time, financial markets would be watching closely for signs that fiscal policy was becoming less predictable.
The Treasury’s dilemma is therefore not simply about raising more money. It is about finding a balance between taxation, public spending, economic growth and market confidence. Britain already has a historically high tax burden, while public expenditure remains substantial. At the same time, demographic changes, defence requirements and higher debt-interest payments are placing additional pressure on government finances.
Another complication is Labour’s previous political commitments. The party’s 2024 manifesto promised not to increase income tax, VAT or employee National Insurance. Breaking those commitments could generate political controversy, even if ministers argued that changing economic circumstances justified a different approach. For this reason, the government may prefer to examine taxes that are not explicitly covered by those pledges.
Possible increases in capital gains tax, corporation tax, taxes on high-value property or sector-specific windfall taxes could therefore become particularly important in the Budget debate. The precise combination matters because different taxes affect different groups and can have different consequences for investment, employment, consumption and government revenue.
There is also a wider political question about Burnham’s economic identity. His political programme has combined promises to improve living standards with a commitment to investment and greater regional economic power. Yet achieving these goals requires substantial resources at precisely the moment when the Treasury is facing tighter constraints.
The government’s challenge will be to demonstrate that its policies are financially credible while also delivering visible improvements to households. Burnham has already introduced measures aimed at reducing pressure on the cost of living, but these policies must be financed in a sustainable way. The Treasury therefore has to consider not only what people need today but also what the government can afford over the coming years.
Ultimately, the dramatic language surrounding an alleged Treasury “meltdown” should not obscure the underlying economic facts. Britain is facing higher borrowing costs, persistent inflationary pressure and significant demands on public finances. Ministers are examining possible tax changes, but no complete package has been confirmed ahead of the October Budget.
Similarly, claims about an early election remain a matter of political speculation rather than established government policy. Burnham has publicly rejected the idea of a snap election, while reports suggest that some Labour figures have nevertheless discussed the strategic implications of election timing.
The coming Budget will therefore be a crucial moment for the government. It will reveal how far Burnham and Healey are prepared to go in raising revenue, controlling spending and changing the tax system. More importantly, it will show how the new Labour government intends to reconcile its political ambitions with the financial constraints facing Britain.
For voters and investors alike, the most important question is not whether newspaper headlines describe the situation as a “meltdown” or a “tax raid”. The more substantive issue is what policies the government actually announces, how much revenue they are expected to raise, who will bear the cost and whether the measures are consistent with the government’s wider economic objectives. Those details, rather than speculation about secret plans, will ultimately determine the significance of Burnham’s first major fiscal test.
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