Prime Minister Andy Burnham has announced that VAT on electricity bills will be removed from October 1, marking his first major policy decision in office. The move is expected to save households approximately £45 per year on the Ofgem price cap, providing immediate relief to millions of families across the UK.
Immediate Action on Energy Costs
The VAT cut is part of Burnham's commitment to tackle the cost of living crisis, which he highlighted in his inaugural speech at Downing Street. The policy will be funded by scrapping the previous government's £1.8 billion digital ID programme, a decision Burnham says reallocates funds to where they are most needed.
Prime Minister Andy Burnham 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."
Impact on Households and Businesses
The £45 reduction applies on top of the £150 removed by Sir Keir Starmer's government in last year's budget, although that reduction was slightly less in practice due to other cost increases affecting the price cap. The new price cap will be announced in late August, with the VAT cut taking effect from October 1.
Small businesses eligible for domestic energy VAT relief, charities, and residential care homes that qualify for the reduced rate will also benefit from the cut. Downing Street has indicated that further long-term measures on the cost of living will be outlined in the next budget this autumn.
Funding and Economic Impact
Chancellor of the Exchequer John Healey MP 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."
The decision to cancel the digital ID programme, which was a flagship project of the previous government, frees up £1.8 billion to fund the VAT reduction. The Treasury expects the cut to help lower inflation by reducing household energy costs, providing a boost to consumer spending power during the winter months.
