UK households will save £45 a year from today (October 1) as VAT is removed from domestic electricity, a policy announced by Prime Minister Andy Burnham in July. The £850 million tax cut is funded by cancelling the Digital ID programme, Chancellor John Healey confirmed.
How the saving works
Currently, suppliers add up the amount of electricity used in a given period, along with the daily electricity standing charge, and apply 5% VAT to that part of the bill. Starting from today, this requirement is removed.
It is estimated that the change will reduce the annual Ofgem price cap by around £45 from October, with suppliers expected to pass savings on to their customers.
Part of 'bring back hope' plan
The electricity tax cut measure is part of Mr Burnham's plan to 'bring back hope' for families struggling amid the cost-of-living crisis. The Makerfield MP made the announcement just a day after promising a transformative 10-year plan for Britain.
When announcing the cut, the Prime Minister 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.”
Chancellor's statement
Mr 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.
He continued: “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."
In his first address to the nation as Prime Minister, Mr Burnham pledged the biggest change to British politics in 40 years, and said he would deliver 'a new political model and a new economic model' for Britain.
