Andy Burnham ‘looking at new regional Income Tax plan’ for households | Personal Finance | Finance

The imminent new Prime Minister, Andy Burnham, could make a huge change to Income Tax, with the charge on earnings paid regionally in a devolved system rather than to central government.

Sir Keir Starmer announced his plan to step down as leader of the Labour party on Monday, following the former Mayor of Greater Manchester’s landslide victory in the Makerfield by-election. Reports say this has put him on course to become the new party leader and, by extension, the next Prime Minister.

Lord Jim O’Neil, who served as an economic advisor to Mr Burnham during his time as Mayor, told LBC that devolving taxes is “definitely something that would be on the agenda to study in a serious way.”

He pointed to business rates (the levy paid to the Government by businesses such as shops and offices) and income tax as two possible taxes that could be devolved to regions, and went on to describe the redistribution of power away from London as ‘badly needed’.

While there is no detail on how this could work, in the US, Income Tax is handled on a state level rather than by central Government. It means that workers in different states are taxed at different rates on the same earnings, while others pay no Income Tax at all.

Of the 41 states that tax earnings, 14 have a single tax rate and 27 have graduated tax rates with different brackets.

Here in the UK, Scotland already has devolved powers on tax and levies different Income Tax rates from England.

In England, for example, the basic rate of tax of 20% kicks in on earnings above £12,570, then rises to 40% on earnings above £50,270.

In Scotland, the first tax rate is 19%, but only on earnings between £12,570 and £16,537. Then it increases in increments from 20% to 21% and to 42% on earnings above £43,663, a lower income bracket with a higher income take.

Chancellor Rachel Reeves, who is predicted to be replaced if Mr Burnham becomes prime minister, would not be drawn on whether she may accept another role as talks continue over who might serve in his Cabinet.

“I’m not going to pre-empt the decisions that the new prime minister will make,” she told the BBC.

“I’m backing Andy. I think he’d be a great prime minister, but those are his decisions, not mine to make.”

Mr Burnham is reportedly yet to settle on his choice of Chancellor, though speculation has focused on Energy Secretary Ed Miliband.

But some within Labour have cautioned against appointing him, with chief secretary to the Prime Minister Darren Jones appearing to suggest the former party leader would not meet his “tests” to run the Treasury.