what Burnham’s tax plans mean for SMEs

Rachel Reeves has been sacked as chancellor in one of Andy Burnham’s first acts as prime minister, and the new occupant of No 10 wasted little time signalling where the tax burden could shift next: a possible income tax cut for lower earners, no promise to spare higher earners a 50p rate, and billions more borrowed for infrastructure.

Reeves, who does not appear to have taken another Cabinet job, departed with a defence of her record. “It has been the privilege of my life to serve as the Chancellor of the Exchequer,” she said. “The economy today is stronger, fairer and more resilient because of the choices we have taken as a Labour Government over the past two years.”

She added: “I said when I was appointed Chancellor that I would judge my time in office if the lives ordinary working class people have been improved. I’m proud to say that they have.

“And to every young woman and girl let my time in office show there should be no ceilings on your ambitions, your hopes or your dreams.”

Her successor has yet to be confirmed, with the runners and riders for No 11 ranging from Wes Streeting to Ed Miliband. Whoever gets the job will inherit a Budget in-tray already half written by their new boss.

Burnham said he will look at cutting income tax for lower earners in the autumn Budget, singling out the personal allowance, frozen at £12,570 for the past five years, as a priority.

“I heard issues related to the personal allowance more than anything on doorsteps in Makerfield,” he said, arguing the freeze “has dragged more people in”, pensioners among them, and “has become a growing issue”.

He is not wrong about the drag. HMRC figures last year showed the freeze had pulled 420,000 more pensioners into the income tax net in a single year. For employers, any thaw would put more take-home pay in staff pockets without adding a penny to the payroll bill, a rare Budget measure SMEs could cheer.

The picture is less comfortable at the top of the income scale. Asked whether he could raise the top rate of income tax from 45p to 50p, as he has previously proposed, Burnham declined to rule it out. “I think that would be just premature to say that. I’ve barely got my feet under the table,” he said.

That ambiguity leaves higher-earning owner-directors guessing until the autumn, and it sits alongside his earlier pledge of a 20 per cent business rates cut for pubs and high street firms, funded by higher levies on online retailers’ warehouses. The direction of travel is clear: relief at the bottom, and the bill sent elsewhere.

On borrowing, Burnham said he will use “any flexibility” in the government’s fiscal rules to fund infrastructure investment. Experts say a change in the definition of public debt could free up an extra £16 billion, because the National Wealth Fund and other institutions can now lend or take stakes in companies without affecting the debt target.

“I’ve said we’ll stick to the fiscal rules and by that I mean the existing fiscal rules and use obviously any flexibility within them,” he said. “But we will stick to the existing rules and I’ve made that very clear in Downing Street. So none of this is about taking risks with the economy. I’ve never done that in any role that I’ve had.”

For construction, engineering and supply-chain SMEs, £16 billion of infrastructure spending is a pipeline worth watching. For everyone else, the message from the new prime minister is to keep an eye on the autumn Budget, and perhaps on the 50p rate he has conspicuously declined to bury.

Paul Jones

Harvard alumni and former New York Times journalist. Editor of Business Matters for over 15 years, the UKs largest business magazine. I am also head of Capital Business Media’s automotive division working for clients such as Red Bull Racing, Honda, Aston Martin and Infiniti.