Money Saving Expert founder Martin Lewis has issued a warning on Andy Burnham’s plans to cut VAT on electricity bills. Mr Burnham, who succeeded Sir Keir Starmer as Prime Minister on Monday, unveiled the VAT cut in efforts to help people with the cost of living crisis.
Details of the VAT cut
Mr Burnham and his new Chancellor, John Healey, announced that the VAT will be removed from domestic electricity bills from October 1. The cut will be funded by axing Sir Keir Starmer's digital ID programme, the government said. However, while the change will see bills reduced by 4.8%, Martin Lewis says that “people won’t feel much benefit”.
Lewis's analysis
He said that the focus on electricity prices is “logical,” as the government’s push to move people away from gas, while gas prices are lower than electricity prices, partly offsets that, but the government will need to do a lot more for Brits to save money on their bills.
In a post on X, he wrote: “This is a good totemic step and very welcomed. Yet in practice people won't feel much benefit. “The energy Price Cap on 1 October for elec & gas is currently predicted to rise 3.1% which on typical bills is over £50 on an annualised basis (and that's likely to be in the right ballpark as we're a decent way through the analysis period). “So the VAT cut gain over 6mths is mostly eaten up by that. Especially as the prediction is a further rise in January (though that is far more crystal ball gazing).”
The Money Saving Expert added that while people will be paying less than they would’ve without the cut, it will “need a lot more policy reductions” for things to feel cheaper.
He continued: “PS I should also note the move to focus on electricity prices is logical. It has been strange that govt policy has been to move people away from gas, yet we've seen the gas price get relatively cheaper compared to electricity. This reverses some of that.”
Prime Minister's response
The Prime Minister said something needs to be done about families struggling with the cost of living, and that immediate action is being taken. He said: “Westminster has not been working for people for too long, with families struggling with the cost of living. That needs to change. “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.”
