Andy Burnham is facing growing calls from business leaders and investors to set out his economic plans in full, amid warnings that uncertainty over future tax policy could damage investment and slow economic growth.
The former Greater Manchester mayor, who is widely expected to become Prime Minister in the coming weeks following his return to Westminster, has raised the prospect of future tax changes while declining to confirm who would serve as Chancellor in any future government.
His comments have prompted concern among parts of the City, with senior figures warning that businesses and investors require clarity if confidence is to be maintained.
Mike O’Shea, chief executive of investment firm Premier Miton, which manages around £9 billion in client assets, said prolonged uncertainty can have significant economic consequences.
“Uncertainty is stifling,” he said. “Businesses delay investment, consumers postpone spending and investors sit on their hands. The longer uncertainty persists, the greater the economic cost.”
The warning comes as Labour continues to face questions over how it would fund a range of spending commitments, including defence investment, while maintaining its pledge not to increase income tax, VAT or National Insurance.
Speaking to LBC, Mr Burnham reiterated Labour’s commitment to those manifesto promises but suggested there remained scope for changes elsewhere in the tax system.
He said there was “some room within that manifesto for movement on tax”, a remark that has fuelled speculation over possible increases to other taxes.
Questions also remain over who would occupy Number 11 should Mr Burnham enter Downing Street.
Currency markets are closely watching developments, with Neil Jones, managing director at foreign exchange broker TJM FX, warning that the outlook for sterling could depend heavily on who is chosen as Chancellor.
“The pound outlook is looking increasingly binary over the next three months,” he said, adding that attention was now focused on the future occupant of the Treasury.
Among those reportedly under consideration is former Labour leader Ed Miliband. His potential appointment has attracted attention from both business groups and trade unions, with some expressing concern that it could signal a further shift towards interventionist economic policies.
Business leaders are also urging Labour to provide certainty on the timing of its first Budget.
Many in the private sector argue that prolonged delays would risk repeating the uncertainty that surrounded last year’s fiscal statement, which some economists believe contributed to weaker investment activity.
Mr O’Shea has called for an early Budget, suggesting that clarity on taxation and spending plans should be provided as soon as possible after any change of government.
Labour has already indicated that it is considering reforms to business rates, including proposals that could increase the burden on large distribution warehouses while reducing costs for some high street businesses.
Mr Burnham has also previously expressed support for examining land taxation and has argued that assets are taxed more favourably than work, comments that have led to speculation over possible changes to capital gains tax.
At the same time, Labour faces questions over how it would finance increased defence spending.
The party has inherited scrutiny over what critics describe as a potential £15 billion gap between defence ambitions and identified funding sources. While Mr Burnham has pledged to seek savings from welfare spending to help fund defence commitments, he has ruled out what he described as “crude” cuts to benefits.
Laurence Hulse, investment director at Dowgate Wealth, cautioned against relying on further tax increases to close funding gaps.
“We cannot tax our way to growth,” he said. “We have got to incentivise risk-taking and enterprise again.”
Others in the investment sector have echoed concerns that excessive taxation could ultimately reduce economic activity and undermine the very revenues government is seeking to raise.
Mr O’Shea argued that economic growth remains the key driver of long-term tax receipts, warning that governments must be careful not to discourage investment, employment and wealth creation through higher taxes.
The debate is likely to intensify in the coming weeks as Labour comes under increasing pressure to explain how it intends to balance spending commitments, economic growth and taxation.
For businesses, investors and financial markets, the message from many in the City is straightforward: clarity is needed, and quickly.
