Key Takeaways
- A new chancellor, replacing Rachel Reeves, is expected to be announced this week.
- Her potential replacement has discussed increasing the capital gains tax.
- The state pension triple lock could remain, with no immediate changes to income taxes, experts say.
There is no confirmation yet that an Andy Burnham-led government would increase the UK’s main taxes. Still, economists, analysts, and investors are already speculating about what the new prime minister and chancellor will mean for tax and spending. With Burnham expected to be declared Labour leader and prime minister as soon as July 17, and his choice for chancellor due this week, discussion is focused on wealth taxes, the pension triple lock, capital gains tax, and the defense and welfare budgets.
What Has Burnham Said About Taxes?
While Burnham’s June 29 speech was light on policy detail, the speed of political changes means economists, analysts, and investors are already speculating about what the new prime minister and chancellor will mean for tax and spending.
UK bond, currency, and stock markets were largely unmoved on June 29, when Burnham made his first proper public speech and laid out ambitious plans to fix a country “stuck in a rut” since the Brexit vote 10 years ago. That lack of a reaction has been a consistent theme since Keir Starmer resigned as prime minister on June 22, triggering a leadership contest.
“Not that long ago, Andy Burnham sent bond markets into a panic, but although he is not yet PM, his impact since winning the Makerfield by-election has been mild so far,” says Kathleen Brooks, research director at XTB.
The yield on the 10-year gilt is currently around 4.70%, around 0.09 percentage points lower than a month ago and below the 5.15% yield in May, while the pound remains around USD 1.32, the same as before Starmer resigned.
“Burnham seems to be popular in the party, and he could usher in a period of stability after a fractious couple of years. Most importantly, the fact that he is liked by the parliamentary Labour Party could make it easier for him to push through policies disliked by the hard left, including benefit and immigration reform,” Brooks says.
What Taxes Could Burnham Raise?
One reason bond markets are not yet flashing warning signs is that the new chancellor is likely to abide by Rachel Reeves’ “fiscal rules,” which tie the government to stricter spending and borrowing plans. XTB’s Brooks says Burnham “may stick to the Labour Party manifesto not to raise the three main taxes [income tax, national insurance, and VAT].”
What We Know So Far
- The state pension triple lock will stay for now.
- Income taxes are unlikely to rise in the short term.
- The new chancellor is expected to follow Reeves’ “fiscal rules.”
- Changes to capital gains tax are being considered.
Could Burnham Increase Capital Gains Tax?
Wealth taxes have been discussed as an alternative to raising working-age taxation, but reforms to capital gains tax are considered more likely. Current capital gains tax rates are below those levied on income, which are staggered in bands of 20%, 40%, and 45%.
Aligning CGT rates with income would target asset-rich Britons with property and equity portfolios, which potential new chancellor Wes Streeting says would raise billions for infrastructure, defence, and broader projects to rebalance the economy and political centre of gravity away from London.
But analysis by investment platform IG says this could cost the government nearly £8 billion through the behavioural response from investors, who would defer asset sales. “Aligning capital gains tax with income tax rates would not only make investing less attractive but would also prove fiscally counterproductive,” says Michael Healy, managing director of UK & Ireland at IG. He adds that the UK already has some of the lowest retail investment among major developed economies.
The Bottom Line: Would Burnham Really Raise Taxes?
In terms of immediate policy announcements, Richard Flax, chief investment officer at Moneyfarm, expects “more of the same” from Burnham and the new chancellor, not least because taxes are already approaching 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 says.
Savers, investors, and taxpayers will be closely watching developments in the next few weeks as more policies emerge. Oliver Faizallah, head of fixed income research at Raymond James, says there is still peril for bond investors until there is clarity on the new government’s economic plans. “Gilt markets will be hoping to gain more comfort from clear views on how he will maintain current fiscal rules and stay within borrowing limits, preferably with a realistic plan on bringing down the country’s debt levels,” he says.
