Burnham considers £14bn capital gains tax raid to raise tax-free allowance to £15,570

The proposal, put forward by green energy tycoon and Labour donor Dale Vince, has been formally submitted to both the Treasury and Downing Street’s policy unit for detailed consideration ahead of the Budget on October 28.

Mr Vince, who has given £6million to the party since 2013 through his company Ecotricity, warns in his Budget submission that wealth continues to be "taxed more lightly than work".

The PM and Chancellor John Healey are also looking for ways to alleviate the cost of living crisis before an expected hike in energy bills in the New Year.

Bringing CGT rates into line with existing income tax bands would raise an estimated £14billion, according to the submission.

The remaining funding would come from scrapping interest payments on Bank of England reserves. Together, these measures could pay for lifting the tax-free threshold to £15,570.

This is just short of where the tax allowance would sit had it not been frozen since 2021 under the former Conservative Government.

Modelling carried out by the National Institute of Economic and Social Research (NIESR) suggests the £3,000 rise in the personal allowance would leave those in the bottom fifth of earners roughly £600 a year better off.

The overall cost to the Exchequer would be approximately £20billion. The proposals were submitted last week and have been directed to both the Treasury and No 10’s policy unit, where they will undergo thorough assessment.

Households across the country are bracing for rising bills, while state pensioners risk being pulled into the income tax net for the first time.

Before entering Downing Street, Mr Burnham acknowledged that the frozen personal allowance was "the thing I heard the most on the doorsteps" while campaigning in his Makerfield constituency.

Pressure is building from within his own ranks, with Cabinet ministers and union leaders alike urging swift action to ease the financial squeeze on working families.

The Prime Minister has previously said he was "looking at" raising the threshold, but warned the move was "difficult" and carried "significant consequences" for the public finances, adding that a final decision would come at the Budget.

Cabinet Minister Louise Haigh voiced her support in May, arguing that CGT should be brought closer to income tax rates to "shift the tax burden away from punishing work and towards unproductive capital accumulation".

Defence Secretary Wes Streeting, once seen as a potential leadership rival to Mr Burnham, has also endorsed the principle, having previously declared that Britain needed "a wealth tax that works".

Unite general secretary Sharon Graham last week called directly on the Prime Minister "to step in" by raising the allowance "to put more money in workers’ pockets", adding the weight of Labour’s largest union donor to the campaign.