UK National Contributions Tax: Burnham’s Radical Tax Plan

While most headlines about the UK’s leadership transition have focused on the political theatre — Keir Starmer’s resignation, Andy Burnham’s uncontested path to Number 10 — a genuinely radical tax proposal has been sitting in plain sight, and it deserves far more scrutiny than it’s getting.

Lord Jim O’Neill of Gatley, the former Goldman Sachs chief economist now advising Burnham, has joined five other economists in calling for the biggest overhaul of the UK tax system in generations. The plan, detailed in a report from the UCL Institute for Global Prosperity, would scrap income tax, National Insurance, capital gains tax, dividend tax, and inheritance tax entirely — replacing all of them with a single “National Contributions” levy applied to income. Separately, the report proposes replacing stamp duty with a flat 1% annual levy on property values. Backers argue the combined changes could boost fiscal headroom by £38 billion while raising an additional £18 billion in revenue (CPA Business News).

This is not a minor tweak. It’s a proposal to collapse six separate taxes — each with its own thresholds, reliefs, and carve-outs built up over decades — into one unified system.

Why This Is Happening Now

Burnham inherits an economy that, by almost every measure, is stuck. GDP grew just 0.1% at the end of 2025, later revised down from an initial 0.2% estimate. The following quarter did better at 0.6%, but growth reversed again with a 0.1% GDP contraction in April. Inflation remains stubbornly above the Bank of England’s 2% target at 2.8%, while real household disposable income fell 0.8% in the first quarter as prices and taxes squeezed consumers simultaneously (CPA Business News).

Bank of England Governor Andrew Bailey has been unusually blunt about his own discomfort with the inflation trajectory, backing chief economist Huw Pill’s concern that persistent price pressure remains a genuine problem even as the Bank held rates at 3.75% (CPA Business News). Bailey has also warned that recent energy price increases are still feeding through the system, telling reporters that although oil prices have fallen, they remain well above pre-conflict levels (Hanbury Wealth).

Against that backdrop, a government looking for both simplicity and additional fiscal headroom has an obvious incentive to consider structural reform rather than incremental tinkering.

The Political Balancing Act Burnham Faces

Burnham has already signalled several early priorities: greater devolution of power away from Whitehall, more public control over essential services and utilities, an expanded housebuilding push, and rebalancing the prestige gap between university education and technical qualifications. There are also indications that cost-of-living relief could be an early priority — though crucially, from a market perspective, Burnham has said he won’t abandon existing fiscal rules (UK Finance).

That last point matters enormously. Investors watching the transition are specifically worried about how quickly a new government responds to the cost-of-living crisis, with some advisers reportedly pushing for immediate household support and others urging fiscal restraint (CPA Business News). The National Contributions proposal threads that needle: it’s marketed as simplification rather than a tax rise, even though the reported £18 billion revenue increase suggests the net effect on payers won’t be neutral across income and wealth brackets.

There’s also a live debate about a windfall tax on banks. The Trades Union Congress is pushing Burnham to introduce one, with estimates suggesting it could raise between £9 billion and £60 billion over four years. UK Finance, representing the banking sector, has warned such a measure could damage the City of London’s competitiveness and cost jobs — a warning echoed by Lord O’Neill himself, who has cautioned against piling further taxes onto business even as he backs the broader National Contributions overhaul (CPA Business News).

What a Single-Levy System Would Actually Change

For a typical PAYE employee, collapsing income tax and National Insurance into one line item mostly simplifies payslips and reduces the marginal-rate cliff edges that currently exist where the two systems interact awkwardly (particularly around the upper earnings threshold).

For higher earners and business owners, the bigger question is what happens to capital gains, dividends, and inheritance once they’re folded into a single “contributions” framework. Currently, these income types are taxed at different rates specifically because policymakers have historically wanted to treat earned income, investment returns, and inherited wealth differently. Merging them into one levy structure would represent a genuine philosophical shift in how the UK treats different sources of wealth — not just an administrative simplification.

The proposed 1% property value levy replacing stamp duty is arguably just as significant. Stamp duty is currently a one-off transaction tax paid at the point of sale; a recurring annual levy on property value is a fundamentally different instrument; it behaves more like a wealth tax than a transaction tax, and it would hit asset-rich, cash-poor homeowners — particularly retirees in high-value properties — differently than the current system does.

The Business Confidence Problem This Has to Overcome

Business sentiment has already deteriorated sharply heading into this transition. The Institute of Directors’ sentiment index fell to minus 61 in June from minus 53 in May, and a separate business activity reading swung from a positive 65 reading in March to negative 58 in June, with firms citing weaker profitability and poor investment returns (CPA Business News). Political uncertainty around potential tax changes is explicitly cited as a factor weighing on business planning.

That creates a difficult sequencing problem for Burnham: the tax overhaul that could eventually simplify the system and boost fiscal headroom requires exactly the kind of near-term uncertainty that is currently suppressing business investment and hiring.

What to Watch Next

The Bank of England’s next Monetary Policy Committee meeting on 30 July will be an early indicator of whether the fragile Q1 growth pickup can be sustained under the new government. Markets will also be watching for the first concrete policy announcements once Burnham formally becomes Prime Minister, expected around 20 July, particularly on whether the National Contributions proposal moves from think-tank paper to government white paper.

For now, this remains a proposal rather than legislation. But the fact that it’s being championed by an economist actively advising the incoming Prime Minister — rather than floated by an outside think tank with no government access — makes it worth tracking closely.