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Andy Burnham has rowed back on plans to raise the tax-free personal allowance after being accused of announcing unfunded tax cuts.
Government sources said on Tuesday that there were no plans to announce any changes to the £12,570 personal allowance in the short term.
The new Prime Minister hinted in an interview at the weekend that he was looking at ending the five-year freeze on the threshold, saying “frustration” over the issue came up regularly on the doorstep at the Makerfield by-election.
It is understood that officials have concluded that raising the untaxed proportion of income would cost £3.7bn.
Mr Burnham’s retreat on the income tax amendment comes as Darren Jones, Sir Keir Starmer’s closest ally, accused the Prime Minister of unveiling an unfunded plan to cut VAT on electricity bills.
The Prime Minister began his first full day in No 10 by announcing that he would use money freed up by scrapping the digital ID scheme to remove the 5 per cent levy on electricity bills from Oct 1.
But Mr Jones, who was sacked in the reshuffle, said the digital ID scheme had been “unfunded”.
Burnham ‘will show fiscal discipline’
An ally of the Prime Minister said there was not yet “any commitment” to the idea of raising the personal allowance. “What he was saying is that people are feeling unheard,” they said.
Another source told the Financial Times that Mr Burnham had explored making an early announcement on increasing the allowance but shied away because of the cost.
On Monday, the Prime Minister told reporters that the personal allowance issue would be looked at in the Budget but added: “Obviously it’s difficult, given the financial circumstances in which we find ourselves.”
Mr Burnham and John Healey, the new Chancellor, emphasised on Tuesday that the Government had to “show fiscal discipline”.
“We’ve got to show that our commitment to the fiscal rules is real and we’re prepared to make the difficult decisions in relation to that,” Mr Burnham said.
Mr Healey underlined the message by telling ministers: “Fiscal control is the first duty of any Chancellor. It is mine. And it is the fiscal credibility that gives us economic stability for growth and national security for the security of our society.”
Wes Streeting, the new Defence Secretary, hinted that Mr Burnham would boost spending on the military, saying he had a “firm friend” in Mr Healey.
But Downing Street would not commit to spending 3 per cent of GDP on the military by 2030.
Mr Burnham’s removal of VAT from Oct 1 is expected to take £45 off a typical home’s annual bill, based on Ofgem’s current price cap, and is the first announcement in a blitz of cost of living policies this week. It will cost £850m in 2026-27.
Sir Keir’s digital ID scheme, which Mr Burnham has scrapped, was expected to cost £1.8bn over three years.
But Mr Jones said: “Good news that VAT will be cut on electricity bills. It’s a simple way for families to save a few quid, and to mechanically help to keep inflation that little bit lower.
“But the digital ID programme was unfunded. The Government will have to set out how it will pay for its new policies at the Budget.”
‘Not a silver bullet’
The Prime Minister’s spokesman insisted the measure was “fully funded” for the first year but accepted that if it continued for longer, the money would have to be found in a future Budget.
Asked whether bills would go up or down in October, the spokesman could not say. “This isn’t a silver bullet,” he said. “It is going to provide some breathing space to help with the cost of living.”
It came as Mr Burnham was accused of delivering “factionalism on speed” by sacking so many allies of Sir Keir in his reshuffle.
As well as Mr Jones, the Prime Minister removed David Lammy, the justice secretary, and Lord Hermer, the attorney general. Rachel Reeves left after she rejected a more junior appointment.
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One government figure told The Times: “This is factionalism on speed. The bitterness is going to be hell.”
An ally of Sir Keir accused those around Mr Burnham of a toxic culture of briefing against colleagues. “They’ve created that culture,” the colleague said. “It’s not going to go away.”
Downing Street declined to comment on whether Mr Burnham would stick to a string of Sir Keir’s policies, namely, the Chagos deal, reducing the number of jury trials and releasing prisoners early.
