UK Economics: Good cop, bad cop? What a Burnham - Healey duo might indicate about the new fiscal stance

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UK Economics: Good cop, bad cop? What a Burnham - Healey duo might indicate about the new fiscal stance

UK Economics

20 July 2026 Citi Research

enough momentum toward adopting some of the recommendations for reforming

the Personal Independence Payments. Taking the OBR estimates from March

2025 on welfare reform, these would save about £4.8 billion in 2029/30.

2. Personal Income threshold increases, but not by much

Mr. Burnham spoke of putting money in people’s pockets – and in particular floated

the idea of increasing the personal allowance. The current Personal Allowance

threshold is £12,570. If Mr. Burnham were to raise the Personal Allowance

threshold to £12,900 for instance, then our back of the envelope calculations

suggest this would cost the government about £2.5 billion based on 2026/2027

tax liability estimates1. However, increasing the threshold to £14,000, instead,

would cost the government roughly £10 billion. As a result, we think any measure to

tweak these thresholds will be minimal.

3. Defence Investment Plan

The Defence Investment Plan will be high on Mr. Healey’s priority list. The Starmer

government had pledged £15 billion, in addition to the more ambitious target of

3.5% of GDP by 2035. This is perhaps where “flexibility” with the fiscal rules may

come into play, and namely the second – Investment—fiscal rule which targets

Public Sector Net Financial Liabilities (PSNFL). Mr. Burnham’s 10-year plan may be

around a long-term investment plan for defence, which would tally with a 2035

timing, and can therefore offset long-term investment in military capability.

Timing of policy announcements is not clear, but is unlikely to be soon

Now that Parliament is in recess, we do not expect any major policy

announcements over the summer.