Martin Lewis has warned that Prime Minister Andy Burnham's move to abolish VAT on electricity bills will leave households with little noticeable financial relief. The consumer finance guru described the £850 million measure as "a good totemic step and very welcomed", but warned that a projected 3.1% increase in the energy Price Cap from October 1 would largely cancel out the promised £45 annual saving.
On a yearly basis, the anticipated Price Cap rise amounts to more than £50 on a typical household bill, comfortably outstripping the value of the tax cut. With further price hikes forecast for January and wholesale energy costs rising amid continued instability in the Middle East, Mr Lewis picked apart the PM's plans as he said households were unlikely to notice any meaningful improvement in their finances despite the Government stepping in.
Burnham's policy details
Andy Burnham, the Prime Minister and former Greater Manchester mayor, took up residence in Downing Street on July 20 as Britain's 59th Prime Minister following Sir Keir Starmer's resignation. In a bid to make positive changes, he unveiled the policy on his second day in office, confirming VAT would be scrapped on household electricity bills for six months from October 1.
Labour estimates the measure will cut electricity bills by 4.8% during the six-month period. The tax reduction applies solely to electricity rather than gas, with energy suppliers expected to pass the saving on to all customers, including those on fixed-rate tariffs. Funding for the policy will be drawn in part from axing Sir Keir Starmer's digital ID scheme, which carried an estimated annual cost of £600 million over three years.
Mr Burnham said: "We're taking immediate action to cut taxes on energy bills, put more money in people's pockets and bring back hope."
Lewis's analysis
However, Mr Lewis later set out his concerns in a post on X, informing his 3.2 million followers that the six-month VAT saving would be "mostly eaten up" by the anticipated October Price Cap rise. He stated that analysts were already well into the assessment period used to determine the autumn cap, rendering the current 3.1% forecast a credible projection.
Mr Lewis wrote: "Another way to put it in context of what '4.8%' means. Ten days ago the cheapest fix was 14% less than the Price Cap, now it is 8% less as wholesale rates have jumped due to the Middle East conflict."
He further noted that while a fresh rise in the Price Cap was anticipated in January, that prediction remained "far more crystal ball gazing". In another post, Mr Lewis wrote: "It is going to need a lot more policy cost reductions, likely at the budget, for things to feel materially cheaper."
