Andy Burnham has rowed back on plans to raise the tax-free personal allowance after being accused of announcing unfunded tax cuts.

Government sources said on Tuesday that there were no plans to announce any changes to the £12,570 personal allowance in the short term.

The new Prime Minister hinted in an interview at the weekend that he was looking at ending the five-year freeze on the threshold, saying “frustration” over the issue came up regularly on the doorstep at the Makerfield by-election.

It is understood that officials have concluded that raising the untaxed proportion of income would cost £3.7bn.

Mr Burnham’s retreat on the income tax amendment comes as Darren Jones, Sir Keir Starmer’s closest ally, accused the Prime Minister of unveiling an unfunded plan to cut VAT on electricity bills.

The Prime Minister began his first full day in No 10 by announcing that he would use money freed up by scrapping the digital ID scheme to remove the 5 per cent levy on electricity bills from Oct 1.

But Mr Jones, who was sacked in the reshuffle, said the digital ID scheme had been “unfunded”.

Burnham ‘will show fiscal discipline’

An ally of the Prime Minister said there was not yet “any commitment” to the idea of raising the personal allowance. “What he was saying is that people are feeling unheard,” they said.

Another source told the Financial Times that Mr Burnham had explored making an early announcement on increasing the allowance but shied away because of the cost.

On Monday, the Prime Minister told reporters that the personal allowance issue would be looked at in the Budget but added: “Obviously it’s difficult, given the financial circumstances in which we find ourselves.”

Mr Burnham and John Healey, the new Chancellor, emphasised on Tuesday that the Government had to “show fiscal discipline”.

“We’ve got to show that our commitment to the fiscal rules is real and we’re prepared to make the difficult decisions in relation to that,” Mr Burnham said.

Mr Healey underlined the message by telling ministers: “Fiscal control is the first duty of any Chancellor. It is mine. And it is the fiscal credibility that gives us economic stability, growth and national security.”