Burnham is facing a tax conundrum. These are the changes he could be forced to make

In just under six weeks’ time, Chancellor John Healey will stand up in the House of Commons and deliver a Budget that some believe will seal the fate of Andy Burnham’s premiership and this Labour Government. It will be the third Budget since Labour took power, and the first after Burnham and Healey said Sir Keir Starmer and Rachel Reeves didn’t do a good enough job. A sign of the intense pressure they are under could be seen in almost every utterance at this year’s Trades Union Conference in Brighton – the annual gathering of the people who pay for Labour – and as such aren’t afraid to criticise the party. Shorts Some of the warnings are stark for the Prime Minister: “What happens in October could decide whether Labour can win the election in 2029”, a senior union source told The i Paper. A failure to boost people’s living standards could lead to another wave of strikes, others warn. The Labour Government, some say, is at the “biting point” after two “underwhelming” years – translation: time is running out. Healey buffeted from several directions Healey is under pressure to deliver on multiple fronts – he must find the money to ease the cost of living, but also to plug a £4.6bn hole in the defence spending plan – a gift from predecessor Rachel Reeves. He resigned as defence secretary over the issue, and pushed Starmer over the edge when he did so. He will lose credibility if he cannot fill the gap. The global headwinds are also against him; the war with Iran has driven up oil and borrowing costs, substantially reducing the “headroom” or spare cash against the fiscal rules to pay down debt and fund day-to-day spending from tax receipts rather than borrowing. And there is Burnham’s pledge to reduce VAT on energy bills to fund. It carries echoes of the problems Reeves herself faced. So what do the unions want? A key demand is to raise the personal tax allowance. Tax bands have been frozen since 2022, which has dragged more and more people into paying more tax as wages rise – dubbed a “stealth tax”. One source warned that Reform UK’s pledge to raise the tax-free personal allowance on income tax to £15,000 was likely to be resonating with workers and the type of voters Labour need to win over, even if they say Nigel Farage and co are writing “cheques that they can’t cash” with their costings. Shortly after taking over as Prime Minister in July, Burnham said he had heard “frustration about the personal allowance” while fighting and winning the Makerfield by-election against Reform, although he later warned it would be financially “difficult” to raise the £12,570 tax threshold. A senior union source nevertheless stressed: “I do think he needs to look at that”, days after Unite leader Sharon Graham told The i Paper that Burnham should also look at unfreezing tax thresholds more widely, arguing that nurses, teachers and tanker drivers are being dragged into the higher 40 per cent rate. ‘Burnham has got a real grip on the Treasury’ The source stressed voters need to feel a “material difference” if the so-called Burnham bounce for Labour is to continue in the polls, urging the Government to be “brave”. That could include “tweaks” to the fiscal rules “if there’s something that needs to be done to help deliver the meaningful change he [Burnham] wants”. While some in Labour have likened Burnham and Healey to “Santa” and “Scrooge” in the run-up to the Budget, some in the union movement believe the Prime Minister could impose his will on the Treasury more effectively than other leaders. “I think it’s pretty clear from the early days and weeks that Burnham has got a real grip on the Treasury in a way that Starmer didn’t,” a union source said. Recalling Reeves’s botched plan to axe the universal winter fuel allowance shortly after the 2024 election, the source added: “Just look at those early days with Starmer which were a complete clusterfuck.” The source urged Burnham to translate his understanding and control of economic policy into bold action with tax rises like a bank levy. The i Paper reported earlier this week that Healey was considering a windfall tax on both banks and oil companies, with Treasury insiders suggesting JPMorgan’s lobbying against a City tax reminding ministers that such a move could be politically popular. Burnham is also well placed to deliver greater investment as he looks to boost growth in all areas of the UK, the source said. ‘A Barrow-in-Furness in every town’ Defence spending provides an opportunity for Burnham’s reindustrialisation plans and to create jobs for Britons and young people amid stubbornly high rates of 16 to 24-year-olds being out of work, education or training, pointing out that Barrow-in-Furness in Cumbria is “booming” because of the nuclear submarine investment announced by Starmer last year. “There should be a Barrow in every town,” the source said. The source said the Government is likely to try and find some of the money to fund military spending rising to 3 per cent of GDP by joining an international defence investment bank, an idea spearheaded by Canadian Prime Minister Mark Carney, who is meeting Burnham this week. The Chancellor may also look at creating war bonds, as he has no option but to generate cash after quitting as defence secretary over a lack of a plan to get to 3 per cent. “They have to find the money from somewhere, John Healey bet the house on it,” the source said. Elsewhere, Burnham is under pressure over the Brexit reset, with unions passing a motion urging him to drop his EU red lines – no single market, customs union or free movement – and push for the closest possible trading relationship to boost the economy. One senior union source said the Brexit reset has ended up being a “massive disappointment”, with progress “buffering” amid negotiating difficulties partly driven by the red lines: “If you want a big economic lever to pull, everyone agrees this would generate GDP.” Food prices warning However, another senior union source warned the economic situation, including the state of public finances and jittery markets, was “very difficult, very problematic” Two sources warned that with energy and food prices rising at a time of tight finances, there could be an inflation spike just as public sector pay and spending on public services is held back. This could lead to a wave of strikes, and potentially boost Reform and the far-right, sources warned. “I think there is renewed hope among unions,” one senior source said. “But I worry about what happens if all the good communications are not matched by reality and we don’t deliver genuine change to people’s lives.” The Treasury said it would not comment on speculation.