Tax overhaul looms as Andy Burnham considers personal allowance reform in 'meaningful boost for millions'

Prime Minister Andy Burnham is understood to be considering major reform to the tax system, which could give a "meaningful boost" to the finances of millions.

Reports are circulating that ministers are weighing up a £3,000 increase to the income tax personal allowance, which would represent the first uplift to the threshold in half a decade.

The proposal under review would shift the point at which workers begin paying income tax from £12,570 to £15,570.

Mr Burnham and Chancellor John Healey are examining a plan put forward by Ecotricity founder and Labour donor Dale Vince.

Said proposal would fund the measure through higher capital gains tax (CGT) rates and by scrapping interest payments the government currently makes on Bank of England reserves.

Mr Vince, who owns the green energy company Ecotricity, argued that the change would deliver a tangible financial lift to millions of taxpayers, with lower earners standing to gain the most.

The entrepreneur shared: "If Labour wants to get the economy moving, it should put money into the pockets of people who will spend it.

"Raising the personal allowance to £15,570 would give millions of people a meaningful boost, with the biggest benefit going to those on the lowest incomes."

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"We can pay for it by making the tax system fairer - starting with capital gains and the billions we currently hand to banks in interest."

The Treasury declined to engage directly with the proposal, stating that tax decisions are for the Chancellor to announce at fiscal events rather than responding to "rumour, speculation or proposals".

Susannah Streeter, chief investment strategist at Wealth Club, noted that tax speculation was intensifying in the run-up to the Budget, with the latest public finances data revealing that Burnham and Healey face a delicate balancing act.

She said: "That is prompting fresh speculation about a potential increase in capital gains tax, particularly if reported plans to raise the personal income-tax allowance from £12,570 become a reality.

She observed that any move to reduce income tax bills would require the government to identify alternative revenue streams, with CGT increasingly discussed as a likely target.

For investors, the prospect of an increased CGT burden could discourage the sale of assets, with some opting to hold rather than crystallise gains at a higher rate.

Ms Streeter pointed to alternatives, however, including tax-efficient venture capital schemes such as SEIS and EIS, which provide relief across income tax, inheritance tax and capital gains tax.

She cautioned that investors ought not to allow Budget speculation to drive their broader strategy, though suggested that a portfolio review might help experienced investors determine whether they are fully utilising available tax shelters.