Andy Burnham 'plotting early election' in desperate bid for income tax hike mandate amid 'meltdown' in Treasury over state of public finances
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By GLEN OWEN POLITICAL EDITOR
Published: | Updated:
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'.
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