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Workers Face New Levy As Burnham Drops Allowance Pledge
— 3 mins read
Personal allowance would stand at £16,070 today if it had tracked inflation
A levy on the wages of workers aged 34 and over is under consideration to fund social care reform, weeks after Andy Burnham dropped his pledge to unfreeze the income tax personal allowance. The Budget falls on Wednesday 28 October, the first delivered by John Healey, who was appointed Chancellor on 20 July on the day Burnham entered Downing Street.
The £3,500 gap in the personal allowance
The personal allowance has been fixed at £12,570 since April 2021. To reflect cumulative inflation since then it would need to stand at roughly £16,070, according to analysis by UK Tax Calculators, which puts the cost of a full unfreeze at £8.5bn to £9bn a year. The freeze was extended to April 2031 at the last Budget, a measure the Office for Budget Responsibility scores at £23bn by 2030/31, as set out by the House of Commons Library.
The Institute for Fiscal Studies expects 10.1 million people to be paying the 40 per cent rate by 2030, against fewer than four million at the start of the decade, figures reported by the Telegraph. Burnham called unfreezing the allowance the number one issue during his by-election campaign, then walked the commitment back within a week of taking office, citing fiscal pressures.
1.8 per cent on earnings above £6,240
The Re:State think tank has proposed a levy of 1.8 per cent on earnings above £6,240, paid by workers aged 34 and over, alongside means-testing the wealth of older people who use the care system. City AM reported in July that the option is being examined in Whitehall. Burnham has said he favours an NHS-style model, arguing that "if everybody contributed a little, it could mean everybody could protect the majority of what they'd worked for". On the manifesto, he was blunt: "I will stick to the manifesto."
The proposal is not government policy. But its threshold sits well below the personal allowance, which means it would reach earnings that carry no income tax at all. A charge on wages is a tax on work, whichever column of the manifesto it avoids.
A charge on wages is a tax on work, whichever column of the manifesto it avoids.
94,000 fewer people on the payroll
There were 30.3 million payrolled employees in July, some 94,000 fewer than a year earlier, Office for National Statistics figures published last month show. Wholesale and retail shed 75,000 employees over the year and accommodation and food services fell 2.8 per cent. Median monthly pay rose 4.2 per cent to £2,642, though frozen thresholds return a share of that increase to the Treasury.
Burnham said during the Makerfield by-election that he wanted to look again at the April 2025 rise in employer National Insurance, Saffery notes in its analysis of the new government. That increase took the rate from 13.8 to 15 per cent and cut the threshold at which employers pay it to £5,000. No reversal has been announced.
The £25bn Healey has to find
The IFS estimates the government needs at least £25bn to meet its spending commitments within its fiscal rules. Capital Economics has put the cost of the government's pledges at £46bn to £63bn, with tax rises of £20bn to £25bn a plausible outcome. Capital gains tax, property taxation and National Insurance relief on salary sacrifice pension contributions are all reported to be under discussion. The OBR expects the tax burden to climb from 36.3 per cent of GDP this year to 38.5 per cent by 2030/31, the highest since records began in 1948, as reported by AJ Bell.
Healey set out his growth plans in Coventry on 7 September, promising to cut the business regulation burden by a quarter and confirming a £150m British Business Bank fund for fast-growing northern firms. He gave no new fiscal numbers. The Budget and the accompanying OBR forecast follow on 28 October.
