Prime Minister Andy Burnham has unveiled an £850m reduction in energy bill taxes aimed at alleviating the cost-of-living crisis in his first major policy announcement since taking office. From October 1, energy bills will be exempt from VAT, saving households approximately £45.
Funding and Impact
The measure will be partly financed by scrapping Sir Keir Starmer's digital ID scheme, which had been projected to cost around £600m a year over three years. Funding for that initiative had been set to come from savings within existing departmental budgets, which will now be redirected to finance the VAT reduction.
The energy price cap established by Ofgem is predicted by industry analysts to sit at £1,849 for a typical household, although the resumption of hostilities in the US-Iran war could push costs higher due to disruption across global oil and gas markets.
Official Statements
The Prime Minister said: "I said I wanted to give people breathing space, and that's what I'm announcing on my second day as Prime Minister. We're taking immediate action to cut taxes on energy bills, put more money in people's pockets and bring back hope."
Energy suppliers are anticipated to pass the VAT reduction on to all customers, including those on fixed tariffs, the Government confirmed.
Chancellor John Healey 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. This measure is funded this year from cancelling the digital ID programme, and it will help bring down inflation while supporting households in every postcode."
Economic and Regional Considerations
Officials confirmed that the VAT reduction, from 5% to 0%, is forecast to lower the consumer prices index measure of inflation by approximately 0.10 percentage points. The policy is set to cost the Exchequer roughly £850m in 2026/27.
Darren Jones, a staunch Starmer ally who was dismissed by Mr Burnham, described the digital ID scheme as "unfunded", casting doubt over how the VAT reduction would be financed. The former chief secretary to the prime minister, who spearheaded work on the ID project, said: "The Government will have to set out how it will pay for its new policies at the budget."
Due to Brexit, EU VAT rates remain applicable on electricity bills in Northern Ireland, meaning the reduction will not extend there. Instead, the Stormont executive will receive funding to deliver an equivalent level of assistance.
Cabinet Reshuffle and Government Changes
Mr Burnham will preside over the inaugural meeting of his new Cabinet on Tuesday, following a significant clear-out of Sir Keir's allies. The far-reaching Cabinet reshuffle began with the appointment of Mr Healey as the incoming Chancellor, succeeding Rachel Reeves.
Other prominent figures removed by Mr Burnham include former deputy prime minister David Lammy, ex-attorney general Lord Hermer and former housing secretary Steve Reed. Louise Haigh, a close ally of Mr Burnham who played a pivotal role in securing his place at No 10, has been appointed First Secretary of State and Chancellor of the Duchy of Lancaster, granting her a formidable position as a troubleshooter across Whitehall.
Ed Miliband has taken on the role of Foreign Secretary, while Shabana Mahmood continues in her position as Home Secretary. Wes Streeting has assumed the role of Defence Secretary, and Angela Rayner has returned to Government as Housing Secretary.
The Department for Science, Innovation and Technology (DSIT) has been abolished, with its policy responsibilities redistributed amongst other departments. Jonathan Reynolds has been appointed Business Secretary with an expanded portfolio now encompassing science and innovation, while Lisa Nandy continues as Culture Secretary with a broadened remit covering digital affairs. Kanishka Narayan will attend Cabinet as AI Minister.
Hamish Falconer will spearhead efforts on the UK's post-Brexit relationship with the European Union, while Ellie Reeves, sister of the former chancellor, has been elevated to Attorney General. Anneliese Midgley, who was instrumental in Mr Burnham's return to Parliament and subsequent rise to No 10, has been appointed chief whip.
A No 10 source confirmed that the new Cabinet had united all factions of the Labour Party behind Mr Burnham's vision for the country.
