Burnham urged to 'ditch manifesto tax promises' by top economist

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Speaking exclusively to LBC, Sir Charles Bean, who served as a deputy governor and chief economist at the Bank of England, said he “absolutely” believes the bond markets will reward Burnham for breaking Labour’s manifesto pledge if he becomes Labour leader.

It comes amid mounting speculation that the chancellor, Rachel Reeves, will be moved on from her role.

VAT, income tax and national insurance are the government’s three biggest revenue raisers. Together, they account for around 60% of total tax receipts.

In an effort to avoid raising the taxes on “working people”, the 2024 Labour Party election manifesto explicitly ruled out changes to these rates to fund additional spending plans.

However, Sir Charles, who also served in a senior role with the Office for Budget Responsibility (OBR), the independent body that scrutinises government spending and taxation plans, said a new prime minister should use this moment to break with the party’s manifesto commitment.

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“Now is a good time, I think, when you have a new leader and a new chancellor, to actually loosen up those constraints, those artificial constraints that are politically imposed - but from an economic point of view, are unwise constraints - to facilitate a better-designed fiscal policy,” he told LBC.

“The original sin in all of this was the promises that Labour made in the election campaign of not raising any of the big taxrates… Everybody has to pay a bit more, I'm afraid. The rich can bear a bit more of the burden, but it is unrealistic to think there's just a few very rich people who can bear it all.

“Things like inheritance tax [on farmers]... are likely to really piss off a small selection of the electorate who feel they're being singled out to bear the burden.

“If you're going to do it, do it now.”

Any move to break the manifesto pledge and increase the headline rates of these taxes would prove highly controversial.

Ahead of last year’s Budget, Reeves was reportedly considering adding 1p to the basic rate of income tax, a measure that would have raised around £8bn for the Exchequer, but the proposal never came into effect.

Next week, Burnham is expected to use a major speech to outline his vision for the economy.

To bolster his economic credibility and calm any market scepticism about his plans, Burnham is understood to have sought advice from Lord O’Neill, a former chief economist at Goldman Sachs, as well as former Bank of England chief economist, Andy Haldane, and Richard Hughes, who was the head of the OBR.

Speaking to Andrew Marr last night, Lord O’Neill suggested the new MP for Makerfield was embarking on a “quiet political revolution”, including the potential devolution of business rates.

Burnham’s choice of chancellor is also likely to be seen as an indication of where he intends to take economic policy. Figures from the party’s centre, such as Shabana Mahmood and Wes Streeting, are reportedly under consideration, as well as the Energy Secretary, Ed Miliband, who is seen to the left of the party.

Sir Charles insisted that the reputation of Burnham’s chancellor alone would not necessarily determine the markets’ reaction, but that some figures would be favoured if the government wished to make big changes to the UK’s economic direction.

“What would be important is not just the personality, but also the justification advanced for any change or tweak and what the markets actually make of it,” he added.

“The bond markets will look kindly on initiatives that might help to raise growth. And in that sense, if any extra borrowing is clearly going to be used to finance extra productive investment, that would be easier to finance than, say, extra borrowing to finance welfare benefits.

“It’s easier I think if you command the trust of the markets already, which somebody perhaps more from the centre might be able to do, as opposed to somebody who's seen as left-wing and has, say, criticised the fiscal rules and argued for taking less concern of what the bond markets think.”

Last year, Burnham was criticised for claiming that the UK had become too “in hock” with the bond markets, which determine how much we are charged for issuing debt, known as gilt yields.

Earlier this year, the UK’s 30-year borrowing costs reached their highest point since 1998, but have since fallen. Gilt yields are currently higher than during Liz Truss’s premiership, though critics of the former prime minister argue that the higher rate is partly due to the shock caused by her 49 days in power.