Prime Minister Andy Burnham has pledged to provide people with more "breathing space" to help them manage the ongoing cost of living crisis. Policies designed to address these financial pressures are set to be announced on Tuesday, his first full day in the role.
Shortly after taking office, the new prime minister confirmed he would be "looking at" the tax-free personal allowance ahead of his first Budget in the autumn. Cost of living has been a central theme for Burnham, who has previously stated that many individuals are unable to afford simple pleasures like going out for a drink or taking their children on outings due to financial strain.
The pressure on household finances has been a dominant issue in recent years, significantly influencing political discourse. Easing this burden has proven to be a complex challenge.
Burnham faces difficult choices regarding funding if he opts to support people with expenses such as energy bills and transport costs, enable higher earnings before tax, or make housing and care more affordable. These decisions will necessitate trade-offs, with his chancellor expected to outline the details and funding mechanisms for any implemented changes.
The urgency of the cost of living crisis was underscored by previous statements from Sir Keir Starmer and Rachel Reeves in January, who described every minute not spent discussing it as "a wasted minute" and declared it the "number one focus." Their government had previously reduced typical annual domestic energy bills by £150 in April by reallocating levies to taxation. However, energy bills, along with food and mortgage costs, subsequently increased due to global events, highlighting the vulnerability of even well-laid plans to external shocks.
Adam French of financial information service Moneyfacts noted that "A more volatile world is a more expensive world."
Burnham has indicated he will "look at" increasing the amount people can earn before paying income tax, a move that would shift the personal allowance threshold. Speaking on his first day as PM, he admitted that changing it would be "difficult" in the current economic circumstances. In England, Wales, and Northern Ireland, income tax and National Insurance thresholds have been frozen until April 2031, a policy that increases the proportion of income taxed as earnings rise and serves as a significant revenue source for the government. Partially reversing this policy would mean this money would have to be found from elsewhere, or borrowed. Burnham has also hinted at "asking for a little bit more" in tax from some people.
The new prime minister is committed to the Labour manifesto's pledge not to raise the main three taxes: income tax, National Insurance, and VAT. However, other taxes could be subject to alteration, similar to recent inheritance tax changes affecting family farms, often bringing a vociferous response.
Potential tax reforms could include replacing stamp duty and council tax with an alternative property tax, or increasing higher rates on capital gains tax to bring them in line with income tax rates. Any such reforms would take time, and bring winners and losers. When Reeves and Starmer tried to make big changes, even with a big majority, numerous u-turns followed, usually forced on him by his own party.
Burnham and his chancellor are also expected to stick to the government's self-imposed fiscal rules, a set of choices on government tax and spending decisions. Opinion is divided on whether these are sensible building blocks for the economy which allow living standards to improve, or a "dysfunctional" economic straitjacket.
Rachel Vahey, head of public policy at investment platform AJ Bell, commented that "The [resulting] rummage down the back of the sofa for loose change has hit personal finances hard, changed the tax landscape, and makes it more challenging for people to save for their future."
Furthermore, Labour's much-debated general election promise to cut household energy bills by £300 by 2030 remains under close scrutiny.
In Downing Street, Burnham stated his intention to "bring essentials under public control" to enhance affordability. While there have been hints about cutting energy bills, which are still set primarily by the wholesale cost of gas – something largely beyond a government's control – the issue of unpaid debt on previous bills is a huge concern. The amount of money owed to energy suppliers by customers is at a record high of £4.79bn, up 15% in a year.
Citizens Advice highlighted that although average bills have dropped back from their peak, they are still far higher than they were five years ago. The charity added that "incomes and bill support mechanisms have not kept up. Households are left with mounting energy debts, forced to choose between heating and eating." Additional strain comes from food and other bills, such as water and food.
Burnham's political capital comes from changes as the mayor of Greater Manchester, particularly to the bus network. Announcements on bus fares are expected this week, but devolution means he can only really control what happens in England. The £3 cap on bus fares in England, outside London, is in place until March next year. However, that scheme is voluntary and not all bus companies have signed up. Rail fares in England were also frozen for the first time in 30 years to the same date by the government. This applies to season tickets covering most commuter routes, some off-peak return tickets on long-distance journeys and flexible tickets for travel in and around major cities until March 2027.
Burnham told The Times that without "sufficient homes for people that they can afford, you chase rent through the benefits system in the private rented sector." Hence his plan – announced in his first speech – to build more council homes, which sits alongside the government's existing ambitious home-building target – already behind schedule.
However, simply building homes does not necessarily make them cheaper. Some lenders are offering first-time buyers the chance of a home loan with a smaller deposit, but the Bank of Mum and Dad remains one of the biggest lenders of all. Building societies, in particularly, are expected to call for less strict rules on how much they can lend and to whom. Ultimately, the cost of a mortgage may depend on what the markets think of Burnham, and his new chancellor's plans.
He said he "does not want to leave office" without reforming the social care system – again, a complex and potentially expensive policy which others have tried, and failed, to tackle. By sticking with the current Labour manifesto, he will also stick with the state pension triple lock, which sees it increase in line with the highest of inflation, average wages or 2.5% every year.
Finally, as with all previous administrations, how a Burnham-led government reacts to events beyond its control may have the biggest impact on the money in people's pockets.
