A new prime minister – and a week of announcements

The Treasury has said that anyone whose sole income is the basic or new state pension will not have to pay income tax. Due to the freeze on the personal allowance (which has stood at £12,570 since 2021), many pensioners had been expected to be pulled into the tax net for the first time as state pension payments rose.

The removal of the 5% VAT on electricity bills for households is expected to come into effect in October and last for six months. The government says the move could save the average household £45 on their annual bill.

Meanwhile, a reduction of 20% on business rates for pubs and clubs will take effect next year. It could see 32,000 venues save around £1,100 in the 2027-28 tax year, according to government figures.

Despite suggestions that Burnham may increase the personal tax allowance, such a move appears ruled out for now. Growing numbers of people are being pulled into paying income tax, or into higher tax bands because of the long-term freeze. However, the prime minister has said he will look at it in the autumn Budget.

There are questions around how any cuts will be funded. The removal of VAT on electricity bills alone could cost about £850 million in 2026-27. Downing Street said the cancellation of the digital ID scheme announced by Sir Keir Starmer while in power would enable it to fund the VAT cut. However, the Office for Budget Responsibility (OBR) has said the scheme was unfunded, with no funding source or savings set aside to cover the cost.

There are also suggestions that more announcements are likely over the coming days. Yet given Burnham has pledged to stick to Labour’s existing fiscal rules, as well as the promise not to raise income tax, his scope to make big spending commitments looks limited at present.

Time is running short for the government. With the OBR requiring at least 10 weeks' notice of a Budget, ministers have little time left to decide how they will balance the books.

For investors, these decisions matter, because tax, spending and borrowing decisions can influence inflation, interest rate expectations and market sentiment.

With the first autumn Budget under the new chancellor and prime minister now only a few months away, markets, investors and households will be watching carefully to see what comes next.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.