New Prime Minister Andy Burnham has used his second day in office to announce the removal of VAT on domestic electricity bills from October 1, a move expected to cut the average household bill by around £45 a year. Flanked by his new Chancellor John Healey, Mr Burnham said the measure would provide early “breathing space” for families struggling with the cost of living.
First major policy of the new government
Speaking outside Downing Street, Mr 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.”
Chancellor John Healey confirmed that the policy will be funded this year by cancelling the Digital ID programme. He 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.”
Impact on energy price cap
The removal of VAT is estimated to reduce the annual Ofgem price cap by approximately £45 from October, with companies expected to pass the reduction onto customers. The policy is the first significant economic intervention by Mr Burnham since he became Prime Minister, replacing Sir Keir Starmer.
In his first address to the nation as Prime Minister, Mr Burnham pledged the biggest change to British politics in 40 years, saying he would deliver “a new political model and a new economic model” for Britain.
Cabinet reshuffle and further measures
On Monday evening, Mr Burnham made sweeping changes to the Cabinet, including appointing John Healey as Chancellor to succeed Rachel Reeves. Senior figures from Sir Keir Starmer’s era, including former deputy prime minister David Lammy, former attorney general Lord Hermer, and former housing secretary Steve Reed, left government. Their replacements will join Mr Burnham around the Downing Street Cabinet Room table on Tuesday.
Other measures Mr Burnham said he is exploring to help households with the cost of living include rent controls and capping the cost of bus fares.
