The manifesto that continues to tie the Chancellor

In summary

• The Prime Minister has committed to honouring the Labour manifesto in the forthcoming Autumn Budget

• It commits the Chancellor to not raising income tax, national insurance, VAT or corporation tax – taxes that together account for almost three quarters of expected revenues in 2026/27

• In the absence of these options, the Chancellor may be faced with repeating Rachel Reeves’ “pick and mix Budget”, scrabbling to raise smaller sums across a wide range of taxes

• He may, instead, decide to put off ambitious spending plans, but the previous Chancellor’s front-loading of spending could limit his room for manoeuvre

The politics are easy enough to understand, but the economics make little sense. Speaking from Ukraine earlier this week, Andy Burnham refused to rule out tax rises in the Autumn Budget, but did commit to two things: To “honour” Labour’s 2024 manifesto and, in another interview, to rule out an early election.

The two are not unrelated. By keeping to the existing manifesto, the new Prime Minister (the fifth since the start of this decade) has been able to argue he has “legitimacy to lead” without a general election to give him a fresh mandate.

The political argument is clear, but economically, the manifesto (ironically, titled “Change”) risks hamstringing the new Chancellor John Healey, and dooming him to make arguably the same mistakes as his predecessors.

The main manifesto promise was that “Labour will not increase taxes on working people”. It goes on to specify that this means not increasing:

• National insurance (although the context enabled Rachel Reeves to argue a rise in employers’ NI was legitimate)

• The basic, higher or additional rates of income tax

• VAT

Together these account for a significant majority of the forecast tax revenue for 2026/27. Income tax alone is expected to raise £358.9 billion: more than 30% of the total tax take. National insurance adds another 18%: £213.7bn. That includes employers’ NI, but it seems unlikely the Chancellor would seek to hike that again, given “overwhelming evidence” of its impact on jobs. Before becoming Prime Minister, Burnham himself seemed to accept the rise “wasn’t the right decision”.

Add in VAT (£188.9bn) and corporation tax (£104.2bn), and, together, the manifesto promises cover almost three quarters (74%) of all expected tax revenue for the year. Moreover, there seems limited room, given the Prime Minister’s previous statements and existing pledges, to significantly raise some other taxes, such as business rates (forecast to raise £37.1bn in 2026/67).

That severely limits the range of existing taxes that the Chancellor could hike and excludes the biggest revenue raisers. It was arguably this that led to Rachel Reeves’ 2025 “pick and mix Budget”, with its complex changes to a wide range of taxes, raising relatively small amounts from each.

Will Healey do the same?

To some extent, indications suggest he might. Among the existing taxes where speculation of rises has focused to date, potentially the most likely to raise significant sums is capital gains tax. In 2026/27 it’s currently forecast to raise £19.8bn – but that’s still less than 2% of the tax take, and, as we’ve noted before, HMRC’s own numbers suggest that increasing the rate by more than 1% risks reducing rather than increasing the tax. Inheritance tax, likewise, currently raises less than 1% of revenue, and attempts to widen the base present huge political and as well as practical challenges.

A wealth tax would be a new source of revenue, meanwhile, but the challenges are well documented, and in the few places they still exist, they account for relatively little of the tax revenue. In Norway, for example, the wealth tax, inheritance tax and property tax together account for only about 3% of revenues, and that’s despite the tax applying at fairly low thresholds and on a relatively wide section of the populace.

Property transaction taxes (£19.2bn) and council tax (£53.6bn) combined are a more significant contributor, of course. However, replacing these with a new land value tax or property tax could take years, probably pushing any change beyond the next election. It would also largely replace the existing revenue of the two, so it’s unclear how much extra could be raised.

As we’ve noted, there are alternatives: Healey could widen the tax base with a levy for care (at the risk of being seen to break the promise on taxing working people). Boris Johnson introduced a 1.25% health and social care tax in 2021 – but accepted it broke the Conservative manifesto, while Burnham has just reiterated his commitment to Labour's.

Another option, though, is already perhaps being hinted at: limiting ambitions in the near-term change. Burnham has continually emphasised that some of his bigger ambitions, such as greater public control of utilities, are long-term projects to be achieved gradually. On his reform of social care, likewise, he has refused to commit to completing reforms before the next election. In any case, substantive moves look unlikely until the conclusion of Baroness Casey’s commission on the issue – even if its report has been brought forward to next Summer.

He and the Chancellor could, therefore, be more modest in their ambitions at least for the coming Budget – and give individuals and businesses a much-needed break from continual change. But that may not be easy either. First, because even without ambitious spending plans, inflationary pressures and rising borrowing costs are eroding the Chancellor’s fiscal headroom. He may feel the need for tax rises to preserve it.

More significantly, perhaps, while Rachel Reeves’ Budgets significantly boosted both taxes and spending, she frontloaded the latter and saved much of the pain for later. Frozen tax thresholds do much of the heavy lifting for revenue raising, and her spending plans tightened considerably after 2027.

Add that to a new leader’s political bounce that could prove short-lived, and time is against the Prime Minister and his Chancellor. They will not want to waste the opportunity the Budget presents.

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