Prem Sikka on urgent actions needed from Andy Burnham to tackle the bleak inheritance of 14 years of Tory austerity
Andy Burnham, the UK’s seventh Prime Minister in a decade, has inherited an economy ravaged by neoliberalism.
Some 25.3m people, including 14.9m working adults and 7.7m children, live below minimum income standards. The poorest 20% pay a higher proportion of their income in direct and indirect taxes than the richest 20%. Workers’ share of gross value added has declined from 71.9% in 1975 to 59%. 6.16m individuals await 7.28m hospital appointments in England. There is a dearth of new hospitals. 1.3m households (about 4m people) are on a waiting list for a social home, but only 12,198 social homes a year are being built. Social care is in disarray. Universities are in financial crisis. Roads are potholed. Half of England’s schools are unfit for use. The court system is creaking and prisons are overflowing. The economy is vulnerable as manufacturing has declined from 30.1% of economic output in 1970 to 8.5% by 2026.
Arbitrary fiscal rules prevent the state from investing in public goods. Consequently, the UK has languished at or near the bottom of the G7 and OECD league of investment in productive assets for over thirty years, resulting in low productivity.
Burnham needs resources to recalibrate society and deliver promised reindustrialisation, defence spending, public ownership of essential industries, investment in infrastructure, social housing and more. He could embrace the Modern Monetary Theory (MMT) and create new money for economic revival but is unlikely to do so. He could increase tax rates but has pledged to stick to Labour’s 2024 manifesto, which promised not to increase National Insurance, marginal rates of income tax, VAT and corporation tax rate. He has also promised to stick to the existing fiscal rules which restrict government borrowing, even though the post-war economic boom was built on government debt of 270% of GDP, compared to the current level of around 95% of GDP.
Even with self-imposed constraints, Burnham has considerable opportunities for generating resources to build an equitable society. Here are some examples:
Wages are taxed at marginal rates of 20%-45%. Earners also pay National Insurance. Capital gains above £3,000 are taxed at marginal rates of 18% to 24%. By taxing capital gains at the same rates as wages, around £12bn to £14bn could be raised. More, if national insurance is levied.
Dividends above £500 are taxed at marginal rates of 8.75%, 33.75%, and 39.35%. Bringing dividend taxes in line with income tax rates could raise £6 billion a year. Higher if national insurance is also charged.
Gross tax relief on pension contributions to employers and employees in 2024 – 2025 was £83.9bn. Some 14% of the tax relief benefited 1.1m additional rate (45%) taxpayers, 57% benefited 6.6m higher rate (40%) taxpayers and 29% benefited 30.4m basic rate (20%) taxpayers. By restricting tax relief at the rate of 20% to all, the government could have £14.5bn spare.
Dividends to foreign investors are paid without deducting tax at source. In principle, foreign investors would pay tax at their place of domicile, but dividends may be paid to vehicles in offshore tax havens which do not levy tax on foreign income. Subject to various tax treaties, the US, Australia and Sweden have a dividend withholding tax rate of 30%, Italy 26%, Germany, Canada and France have 25%. The UK should follow suit. Each £100bn dividend paid to foreign investors could yield £20bn in tax revenues.
Corporate employers pay National Insurance contributions on director salary. In partnerships and limited liability partnerships (LLPs), employers pay national insurance on employee earnings, just like companies. However, partners receive a share of profit instead of a salary and are treated as self-employed. Self-employment status means partnerships and LLPs do not pay employers’ national insurance (ENI) on partners’ share of profits. This enables ENI avoidance. LLPs dodge £150,000 ENI per £1m profit shared. Big four law firms alone reportedly avoided paying £4bn of ENI. There is considerable potential to collect additional ENI from lawyers, accountants, dentists, surveyors and architects trading through partnership structures.
A 1% tax on share buybacks by FTSE-listed companies could on average raise £225m a year. Recently, companies like BP and Shell have handed billions to shareholders through buybacks. The companies were subject to a windfall tax of around 25% on profits. If share buybacks for Shell and BP were subjected to the same 25% rate, this could have raised £11bn.
By charging VAT at the standard rate (20%) on private healthcare insurance, the government could raise around £2bn a year.
A Financial Transactions Tax on the purchase and sale of financial instruments like shares, bonds, and derivatives could raise £5bn a year.
A 2% tax on wealth above £10m could raise £24 billion a year.
In England, a house worth £320,000 falls into the same council tax band as a property worth £32m. Additional council tax bands can raise revenues.
Over 1,180 tax reliefs worth billions are given to individuals and corporations, but only 380 have been costed by HMRC. Another 189 are being investigated. Little is known about the economic benefits of most of them. Many are abused. The National Audit Office described the abuse of the Research & Development (R&D) tax relief scheme as “among the highest reported across all government spending programmes”. A large number of tax reliefs for movies, video games and patents often benefit foreign enterprises or act as hidden subsidies to a few companies. A thorough review can save billions.
Due to numerous tax reliefs and profit shifting, very few companies pay the main 25% rate of corporation tax. The effective tax rate is about 10% lower. A 1% increase in the main rate can generate £3.6bn. Similarly, effects can be achieved by redesigning tax reliefs, such as those relating to the patent box, R&D, and creative industries, which will increase the effective corporation tax rate.
Most financial services are exempt from VAT. Around £8.7bn a year could be raised by charging VAT at the standard rate.
Currently, 8% national insurance is levied on incomes between £12,570 and £50,270, and 2% on incomes beyond that. Around £10bn a year can be raised by extending the 8% rate to all income. Significant amounts can be raised by a graduated rate, e.g. 2% on incomes between £50,271 and £100,000; 3% on income between £100,001 and £150,000, and a higher rate on incomes above that.
The government could reintroduce a 15% investment income surcharge on income exceeding, say £5,000. This could apply to dividends, rental income, capital gains and more and could generate £18bn a year.
In 2024-25, HMRC failed to collect taxes of £59.2bn, totalling nearly £500bn since 2010. HMRC underestimates tax avoidance by wealthy individuals and does not produce an estimate of taxes lost to offshore excursions. £12.8bn is lost through profit shifting by multinationals is not included in the HMRC estimate. Billions can be raised by tackling tax abuse and the industry behind it.
The rules applied for curbing tax avoidance don’t apply to business rate avoidance. The total dodged is not known. Promoters of one scheme boasted that they deprived local councils of £500m of revenue. Millions can be raised by ending abusive schemes.
The Enterprise Act 2002 removed HMRC’s preferential creditor status for bankrupt entities. It was partly restored by the Finance Act 2020, but HMRC is still an unsecured creditor for taxes specifically relating to a business (such as corporation tax and capital gains tax). The losses form a significant part of the £5.6bn written off in 2023-24, £7.2bn in 2024-25 and £12.8bn in 2025-26. Restoration of the preferential creditor status can raise billions.
Since 2006, the Bank of England has paid interest on central bank reserve deposits to commercial banks. Central bank reserves are deposits held by commercial banks at the Bank of England (BoE) and are used to settle payments between banks. They are also used by the BoE to manage interest rates through tools such as quantitative easing. The interest payments accelerated in 2009 as quantitative easing took hold. As interest rates rose, payments to commercial banks increased. The EU had similar arrangements but in 2023 virtually eliminated the practice, saving about £5.2bn a year. The Swiss central bank also stopped paying interest on minimum reserves. The UK continues to pay massive amounts in interest: £38.23bn in 2023, £36.33in 2024 and £25.9bn in 2025. Billions can be freed by ending hidden subsidies to banks.
Research shows that since the pandemic, corporations have increased their profit margins by an average of 30%. Electricity and Gas supply companies increased their profit margins by 363%, often without additional investment or risks. Governments can raise large amounts through windfall taxes. For example, a windfall tax on the UK’s four biggest banks could raise £19bn. A windfall tax is levied on energy companies. Their 2025 profit of £23.1bn is further boosted by the Iran war. There is scope for higher rates of windfall tax.
This article has provided examples of how the public purse can be boosted by tackling anomalies, inequities and abuses, and by broadening the tax base. Resources can be raised without increasing the basic rates of National Insurance, VAT, income and corporation tax. The revenues can be used to recalibrate the tax system, reduce poverty and fuel social development.