Rachel Reeves has been removed as Chancellor of the Exchequer in one of Andy Burnham’s first decisions as prime minister. The new occupant of No 10 has quickly signalled potential shifts in tax policy, including a possible income tax cut for lower earners and no commitment to exclude a 50p top rate.
Reeves, who has not taken another Cabinet role, defended her record upon departure. She stated that the economy is stronger, fairer and more resilient due to decisions made under the Labour Government over the past two years.
She added that her tenure should be judged on whether the lives of ordinary working-class people improved, and expressed pride that they had. Reeves also addressed young women and girls, saying her time in office demonstrated there should be no limits on their ambitions.
Reeves’ successor has not yet been named, with candidates for the role ranging from Wes Streeting to Ed Miliband. Whoever assumes the position will inherit a Budget already partially shaped by the new prime minister.
Burnham confirmed he will consider cutting income tax for lower earners in the autumn Budget. He identified the personal allowance, frozen at £12,570 for five years, as a key priority.
Burnham said concerns about the personal allowance were raised more than any other issue on the campaign trail. He argued the freeze has drawn more people, including pensioners, into the income tax net and has become a growing problem.
Data from HMRC showed the freeze pulled 420,000 additional pensioners into the income tax system in a single year. For employers, an increase in the allowance would raise take-home pay without raising payroll costs.
The outlook is less certain for higher earners. Asked whether the top income tax rate could rise from 45p to 50p, Burnham refused to rule it out, stating it would be premature to comment so early in his tenure.
That uncertainty leaves higher-earning directors awaiting clarity until autumn. It follows Burnham’s earlier proposal for a 20 per cent business rates cut for pubs and high street firms, funded by higher levies on online retail warehouses.
On borrowing, Burnham said he will use any flexibility within existing fiscal rules to fund infrastructure investment. Analysts estimate that redefining public debt could release up to £16 billion by allowing institutions such as the National Wealth Fund to lend or take stakes without impacting debt targets.
Burnham emphasised that no risks will be taken with the economy and that existing fiscal rules will be respected. He stated the approach relies on using permitted flexibility rather than altering the rules themselves.
For construction, engineering and supply-chain firms, £16 billion in infrastructure spending represents a significant opportunity. For the wider public, the autumn Budget will reveal the extent of relief at the lower end and whether the 50p rate remains on the table.
