The Price of Burnham: Pensioners and Entrepreneurs Braced for £25bn Raid
CP
Economists warn Budget could rival Reeves’s record raid, as PM struggles to convince his own advisers his sums add up.
Barely three weeks into the job, Prime Minister Andy Burnham is already on course to preside over one of the biggest tax raids in recent British history, according to City economists, as the bill for his spending pledges comes due.
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, with economists warning it could rival the £26 billion package Reeves unveiled last November.
What the economists are saying
Capital Economics estimates that the spending commitments Burnham has made since taking office in July, including a sweeping council housebuilding drive and an overhaul of social care, 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 warned that with Labour MPs unwilling to stomach real spending discipline and markets running out of patience for more borrowing, it will be ordinary households, not the state, who are asked to foot the bill.
Gregory has put a rough price tag on the scale of Burnham’s ambitions: 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, a warning sign that Burnham’s pledges are outrunning what the Treasury can actually afford.
Among the options Capital Economics believes are on the table: 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 dodge Labour’s manifesto pledge not to raise income tax, National Insurance or VAT by inventing a new, ring-fenced levy for defence or social care, an echo of Rishi Sunak’s much-criticised health and social care levy. A one-percentage-point equivalent rise of that kind could raise up to £10 billion.
Should the government go ahead at the scale Capital Economics is modelling, Gregory warned the UK’s overall tax burden would hit a fresh record of around 39 per cent of GDP, comfortably above the G7 average of roughly 36 per cent. She stopped short of ruling out an even larger raid, on the scale of the £42 billion rise inflicted in the 2024 Budget, should Burnham’s spending ambitions grow further still, though she suggested even this government may balk at squeezing taxpayers further while real incomes are already falling.
Vague reassurances from a government short on detail
Burnham and Healey have jointly written to Cabinet colleagues instructing them to find savings within existing departmental budgets rather than assume fresh money will be available, insisting all the while that they intend to stick to Labour’s fiscal rules, including the pledge to stop borrowing for day-to-day spending by 2030. Healey has told The Times that fiscal credibility remains his and Burnham’s first priority, but has notably declined to rule out tax rises in October, leaving households guessing at what may be coming.
Ministers have so far dodged the central question of whether a wealth tax is in the pipeline. Science minister Chris McDonald was repeatedly pressed on the point during broadcast interviews and would not rule out changes such as a higher capital gains tax, retreating instead to the line that such decisions are for the Budget itself. Burnham has also floated a longer-term plan to scrap council tax and stamp duty in favour of a new property tax, a change that would land London with an extra £7.5 billion bill, though he insists there are no imminent plans to introduce it at that scale.
A Treasury spokesperson offered little beyond boilerplate reassurance, saying the Chancellor remains focused on measures to boost business, ease the cost of living, and support people in every part of the country, and that decisions on tax will be set out at the Budget rather than commented on in advance.
An economic team that won’t sign up
Burnham’s difficulty in recruiting serious economic heavyweights has done little to reassure the markets. 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 looming 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 only informal advice rather than take up a Downing Street post, and former OBR chair Richard Hughes is likewise understood to have advised Burnham from a safe distance rather than join his government outright.
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, a direct rebuke of the direction Burnham appears to be taking. That none of the credible economic figures once linked to Burnham have been willing to put their name to his government has been read by commentators as a telling verdict on the coherence, or lack of it, behind his tax plans.
Consumer mood improves, but the high street lags
The tax debate comes as household sentiment shows tentative signs of recovery, despite the government rather than because of it. 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, driven chiefly by World Cup spending and warm weather rather than any change in economic policy. Card spending rose 2 per cent year-on-year in July, with pubs and cinemas among the biggest beneficiaries, though growth remained below the rate of inflation.
The picture on the high street tells a less flattering story. 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 shoppers stayed 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, a reminder that Britain’s retailers are already under pressure before a single new tax has even been announced.
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.
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(UKR)