New Prime Minister Andy Burnham has made his first major policy announcement since entering Downing Street, cutting VAT on household electricity bills to ease the cost of living. The move, effective from October 1, is expected to reduce the energy price cap by around £45, though critics question how it will be funded.
VAT cut on electricity bills
Burnham announced early on July 21 that VAT would be removed from household electricity bills starting October 1. The measure is intended to offset a sharp rise in the energy price cap, anticipated due to Donald Trump's war in Iran. Business Secretary Jonathan Reynolds told BBC Radio 4's Today programme that the cut would remain in place for the rest of the financial year, with longer-term decisions deferred to the Budget.
Chancellor John Healey, a surprise appointment, said: 'For too long, too many people have struggled with the cost of living. Today's energy tax cut will give families some breathing room on bills, and provide some reassurance this winter.' He claimed the cut is 'funded this year from cancelling the Digital ID programme'.
Labour row over funding
The funding claim sparked a backlash from Darren Jones, former Chief Secretary to the Treasury under Keir Starmer and the lead on the Digital ID scheme. On X, Jones wrote: 'Good news that VAT will be cut on electricity bills. It's a simple way for families to save a few quid, and to mechanically help to keep inflation that little bit lower. But the Digital ID program was unfunded. The government will have to set out how it will pay for its new policies at the budget.'
Opposition MPs seized on the discord. Shadow Energy Secretary Claire Coutinho said: 'If Andy's nicked our plan to cut VAT? Good. But everyone's energy bills are up by £300 since Labour came to office, and the former minister in charge of the Digital ID scheme has said this VAT package is unfunded – which means more tax rises are coming in the Budget.'
Further announcements expected
The VAT cut is the first of several expected announcements this week. Burnham stated the measures would 'give people breathing space' amid the cost of living crisis. In an interview with The Times, he highlighted frustration with the personal allowance level as a key issue he heard on doorsteps.
Upon entering No 10, Burnham sacked several Starmer loyalists from Cabinet, including Rachel Reeves, David Lammy, Steve Reed, and Peter Kyle. His new Cabinet features Ed Miliband as Foreign Secretary, Wes Streeting as Defence Secretary, and Angela Rayner as Housing Secretary.
