Andy Burnham has announced a VAT cut on domestic electricity bills, set to save the average household £45 from October 1. The move, his first major act as Prime Minister, was unveiled just hours before he chaired his first Cabinet meeting.
Details of the VAT Cut
From October 1, VAT will be removed from electricity bills, affecting the next Ofgem price cap expected in late August. The measure is projected to cost £850 million in 2026-27 and will be funded by savings from the scrapped digital ID programme.
Burnham stated, "We're taking immediate action to cut taxes on energy bills, put more money in people's pockets and bring back hope." The cut is expected to reduce the average household bill by £45.
Impact on Households and Businesses
The relief extends to small businesses qualifying for domestic energy VAT relief, charities, and residential care homes eligible for the reduced rate. Newly appointed Chancellor John Healey MP said, "Today's energy tax cut will give families some breathing room on bills, and provide some reassurance this winter."
This measure follows a previous £150 removal by former PM Sir Keir Starmer last year, though that saving was partially offset by other cost increases in the price cap.
Political Context
Burnham teased the announcement in his debut speech outside No10 on July 20, promising action on the cost-of-living crisis. He said, "I said I wanted to give people breathing space, and that's what I'm announcing on my second day as Prime Minister."
The new PM convened his cabinet for the first time on Tuesday morning, having removed several senior figures from the Starmer administration, including former Chancellor Rachel Reeves, deputy prime minister David Lammy, and Business Secretary Peter Kyle.
