Andy Burnham returned from his summer holiday last week and his honeymoon as Prime Minister also felt over.

The ‘Burnham bounce’ has pushed Labour from the high teens to the mid-twenties in the opinion polls.

However, internal conflict over the tough choices his government faces in the autumn Budget is a sign that reality is biting.

Former Goldman Sachs chief economist Jim O’Neill may decline to join Burnham’s economic team due to concerns over the effectiveness of wealth taxes, according to media reports.

The story is a strong indication that such taxes are under serious consideration.

There has been a flurry of announcements since Burnham entered 10 Downing Street on 20 July, including a £2 bus fare cap in England, a cut in business rates for pubs and clubs, abolishing VAT on electricity bills and overhauling the social care system.

Smorgasbord Option

A so-called Smorgasbord of taxes on assets and wealth is likely to be Burnham’s preferred method of payment for his plans, which would mean the High Value Council Tax bands introduced in November’s Budget may prove to be merely introductory rates. 

Given the bond market won’t permit a government spending spree, Labour backbenchers won’t sanction meaningful spending cuts, and the Labour manifesto ruled out income tax, VAT or national insurance rises, the approach increasingly looks like the default option. 

For a Prime Minister known to be a people-pleaser … he will have to alienate more of the electorate as he makes difficult choices that involve trade-offs and lead to unintended consequences.

If high-value property is targeted in the third successive Budget (following changes to the additional rate of stamp duty in 2024 and council tax bands in 2025), it could put a dent the gradual recovery that has been taking place in the prime London market this year. 

However, the Budget on 28 October is not the only area of growing contention.

The early release scheme for prisoners and the housing of asylum seekers were other ways that Burnham felt the political stakes rising last week and such issues could begin to define his premiership.

That said, while the political right is fractured, the possibility of a general election next year should not be discounted if the Burnham bounce is still palpable.

A Low Base

While prime London markets are recovering from a low base, the mainstream UK market has yet to feel the Burnham bounce, figures from the RICS showed last week. 

Describing the market as “subdued”, its latest survey found that new buyer and exchange indicators were again in firmly negative territory. “Near-term sales expectations have become gradually less pessimistic,” the report said, in understated fashion, suggesting that, in the absence of any fresh shocks since November’s Budget, the market has been moving in the right direction.

Rising mortgage costs have also played their part in keeping demand in check due to the Middle East conflict and the associated rise in energy prices and inflation expectations. 

That said, two and five-year swap rates have been trading between 4 and 4.4% since March, suggesting a more limited impact in recent months since the initial surge from under 3.5% in the first three weeks of the war. 

Tenant Squeeze

In a summer when Budget speculation is less intense that last year, one possible change appears to be aligning rates of Capital Gains Tax and Income Tax. 

It would be bad news for some landlords, but tenants would also suffer if owners sold and upwards pressure on rents increased.

The Renters Rights Act, which was introduced in May, has already demonstrated the law of unintended consequences as some landlords have exited while others have set higher asking rents to offset the greater financial risks they face with the new legislation.

If the government wants a lever to pull that is guaranteed to stimulate the housing market, it should listen to housebuilder Bellway, which last week called for a stamp duty cut. 

Streamlining the planning process would help the delivery of new housing but demand is a far more important piece of the puzzle.

Unleashing demand and stimulating growth is the wider economic challenge facing Burnham and Healey. Anything else, however popular or unpopular, is just tinkering.

Tom Bill is head of UK residential research at Knight Frank

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