Tom Selby, director of public policy at AJ Bell, said Healey has a huge job on his hands. “He must keep the nation’s finances on a firm footing while trying to find cash to pay for the PM’s priorities.” He has to somehow fund billions of extra defence spending, sort out our abysmal social care system and ease the cost-of-living crisis. That’s a big ask.
To make life harder, Burnham has pledged to stick to Labour’s manifesto commitment not to raise income tax, National Insurance or VAT. Healey has to find the money somehow, and this year’s autumn Budget could yet be another nightmare. He can’t afford to make the same mistakes as Reeves, Selby said. Before both her Budgets, Reeves allowed speculation about potential tax hikes to rage out of control. “That uncertainty is damaging and can encourage people to make rushed financial planning decisions,” Selby warned.
He also urged Healey to end speculation about plans to curb the hugely popular 25% pension tax-free cash lump sum. That was floated before the last two Budgets, with disastrous consequences. “Billions of pounds of retirement cash was withdrawn based on fear. Without clarity from the new administration this will happen again, further damaging trust in pensions.”
Selby also urged Healey to rule out cutting tax relief on pension contributions, a threat that pops up every Budget and also causes panic and confusion. And he needs to revise Reeves’s “ill-conceived” plan to charge inheritance tax on unused pension pots and death benefits from next April. That’s set to create another headache for grieving families, who face an impossibly tight deadline to track down old pensions and pay the bill.
Reeves also made ISAs more complex, by cutting the Cash ISA allowance to £12,000 for under-65s, creating a charge on cash held in Stocks and Shares ISAs and overhauling the Lifetime ISA. Selby said: “Rather than pushing ahead with this dodgy agenda, Healey has an opportunity to rip it up and start again.”
Selby said Healey should also simplify our insanely complicated tax system, in particular the brutal £100,000 income tax cliff edge where marginal tax rates can hit 60% before dropping on earnings above £125,140. Parents can also lose childcare support worth thousands of pounds, meaning a pay rise can actually leave them worse off. “The chancellor should look to fix this to boost aspiration, reduce complexity and remove a distortion that can discourage people from taking on extra work or responsibility.”
Shaun Moore, tax and financial planning expert at Quilter, warned Healey against slapping still more taxes on savers and investors. “These could deter investment, reduce economic activity and raise less revenue than intended.” Thomas Pugh, chief economist at leading audit, tax and consulting firm RSM UK, warned against more borrowing too. “The risk is that fuels inflation and pushes up gilt yields further, leaving the new chancellor having to borrow faster just to stand still.”
Healey needs to clean up as many of Reeves’s disasters as he possibly can. He’s going to need a very big scoop.