Burnham Set to Hit Households With £25bn Tax Raid, Economists Warn – NATIONAL NEWS
Pensioners and entrepreneurs face the sharpest squeeze as Capital Economics warns of a Budget almost as big as Reeves’s last.
Chancellor John Healey will deliver his first Budget on Wednesday 28 October, nearly a month earlier than Rachel Reeves’s last outing at No. 11, and City economists are warning it could bring a fresh round of tax rises rivalling the £26 billion package Reeves unveiled last November.
Capital Economics, in research reported this week, estimates that the spending commitments made by Prime Minister Andy Burnham since taking office in July could cost tens of billions of pounds and may require tax increases worth up to 0.8 per cent of GDP.
Deputy chief UK economist Ruth Gregory, a former OBR economist, has said the coming Budget “could be almost as big as the last,” and separately noted that with Labour MPs resistant to deep spending cuts and markets wary of higher borrowing, households are likely to bear the brunt of any revenue-raising measures.
Gregory has previously put a rough price tag on some of Burnham’s specific pledges: making social care free at the point of use could add up to £18 billion a year in spending, she estimated, while restoring council housebuilding to postwar levels could cost between £12 billion and £23 billion. She has also cautioned that the government’s fiscal headroom, its buffer against breaking its own borrowing rules, appears to have narrowed since the spring.
Capital Economics’ note flags several specific options it believes are under consideration: a significant rise in capital gains tax, changes to pension taxation, a possible £1.5 billion levy on banks, higher inheritance tax, and, more radically, a standalone wealth tax. The firm also suggested ministers could sidestep Labour’s manifesto pledge not to raise income tax, National Insurance or VAT by introducing a new, ring-fenced levy for defence or social care, comparable to the health and social care levy introduced by former Chancellor Rishi Sunak. A one-percentage-point equivalent rise of that kind could raise up to £10 billion.
If tax rises reach the scale Capital Economics is modelling, Gregory has said the UK’s overall tax burden would hit a fresh record of around 39 per cent of GDP, above the G7 average of roughly 36 per cent. She has not ruled out an even larger package, on the scale of the £42 billion rise introduced in the 2024 Budget, should Burnham’s spending ambitions grow further, but added that she doubts the government will want to squeeze taxpayers too hard while real incomes are still falling.
The government’s position
Burnham and Healey have jointly written to Cabinet colleagues urging them to find savings within departmental budgets rather than assume new money will be available, and have both said they intend to stick to Labour’s existing fiscal rules, including the commitment to stop borrowing for day-to-day spending by 2030, while looking for scope to borrow more for capital investment. Healey has told The Times that fiscal credibility remains his and Burnham’s first priority, and has declined to rule out tax rises in October.
Ministers have so far resisted directly confirming or denying whether a wealth tax is under consideration. Science minister Chris McDonald was repeatedly pressed on the question during broadcast interviews and would not rule out changes such as a higher capital gains tax, saying only that such decisions are for the Budget itself. Burnham has previously floated a separate, longer-term idea, replacing council tax and stamp duty with a new property tax, but has said there are no imminent plans to introduce it on that scale.
A Treasury spokesperson said the Chancellor remains focused on measures to boost business, ease the cost of living, and support people in every part of the country, adding that decisions on tax will be set out at the Budget rather than commented on in advance.
An economic team still taking shape
Burnham’s efforts to recruit senior economic figures have run into difficulty. Lord O’Neill of Gatley, the crossbench peer and former Goldman Sachs chief economist who served as a Treasury minister under David Cameron, is reported by The Times to have turned down a formal role over concerns about a possible wealth tax and a requirement that he place his business interests into a blind trust. Former Bank of England chief economist Andy Haldane has offered informal advice but has likewise not taken up a Downing Street post, and former OBR chair Richard Hughes is also understood to have advised Burnham without joining the government.
Lord O’Neill has previously argued that genuine entrepreneurs deserve a lower tax rate given the risks they take on, and has warned that raising taxes on investors in British businesses could weigh on growth. The absence of senior economic figures in Burnham’s top team has been read by some commentators as a sign that market-friendly voices have less influence over the coming Budget than they did under Reeves.
Consumer mood improves, but the high street lags
The tax debate comes as household sentiment shows tentative signs of recovery. Barclays’ monthly spending survey found that confidence in the UK economy rose to 30 per cent in July, a 21-month high, up six percentage points on June, with respondents reporting modest improvements in job security and their ability to spend on non-essentials. Card spending rose 2 per cent year-on-year in July, with pubs and cinemas among the biggest beneficiaries of England’s World Cup run, though growth remained below the rate of inflation.
The picture on the high street was more mixed. Figures from the British Retail Consortium’s monitor with KPMG showed total retail sales growth easing to 1.3 per cent year-on-year in July, down from 2.5 per cent a year earlier, as warm weather kept shoppers away from physical stores. In-store non-food sales fell 1.9 per cent year-on-year, even as food sales rose 3.8 per cent on the back of World Cup-related spending. BRC chief executive Helen Dickinson said non-food sales were hit by weaker footfall as shoppers avoided the heat, though clothing retailers saw a boost from demand for affordable summer basics.
Sources: Capital Economics research notes as reported by GB News and CityAM; The Times reporting on Lord O’Neill and Andy Haldane via GB News, Scottish Financial News and CityAM; Barclays UK Consumer Spend Report (July 2026); BRC-KPMG Retail Sales Monitor (July 2026); Treasury statements as reported by GB News and Inkl/The Independent.
Main Image: https://creativecommons.org/licenses/by-nc-nd/4.0/
Comments (0)